Q1 2024 Kimco Realty Corp Earnings Call
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Operator: Good day, and welcome to the Kimco Realty first quarter 2024 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would like now to turn the conference over to David Bujnicki, Senior Vice President of Investor Relations. Please go ahead.
Good day and welcome to the Kimco Realty first quarter 'twenty 'twenty four earnings conference call, all participants will be in listen only mode.
You need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
Speaker Change: I'd like now to turn the conference over to David Bush Sneaky Senior Vice President of Investor Relations. Please go ahead.
David F. Bujnicki: Good morning, and thank you for joining Kimco's quarterly earnings call. The Kimco management team participating on the call today includes Conor Flynn, Kimco's CEO; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, our CFO; Dave Jamieson, Kimco's Chief Operating Officer; and other members of our executive team that are also available to answer questions during the call.
Speaker Change: Good morning, and thank you for joining kimco quarterly earnings call. The Kimco management team participating on the call. Today include Conor Flynn Kimco, CEO, Ross Cooper, President and Chief Investment Officer.
Speaker Change: 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.
David F. Bujnicki: 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. Please refer to the company's SEC filings that address such facts. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results.
Speaker Change: As a reminder, statements made during the course of this call maybe deemed forward looking and it's important to note that the company's actual results could differ materially from those projected in such forward looking statements due to a variety of risks uncertainties and other factors. Please refer to the company's SEC filings that address such factors.
Speaker Change: During this presentation management may make reference to certain non-GAAP financial measures that we believe help investors better understand kimco operating results.
David F. Bujnicki: 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 is to incur technical difficulties, we'll try to resolve them as quickly as possible, and if the need arises, we'll post additional information to our IR website. And with that, I'll turn the call over to Connor.
Speaker Change: Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website.
Speaker Change: Also in the event our call was to encourage technical difficulties, we'll try to resolve as quickly as possible and if the need arises we will post additional information to our IR website with that I'll turn the call over to Conor.
Conor C. Flynn: Good morning, and thanks for joining us. I will lead off today with an update on the RPT integration, a summary of our significant first quarter leasing accomplishments, and a brief review of our strategic directions and goals. Ross will follow with an update on the transaction market, and Glenn will close with a summary of our financial results, key metrics, and the specifics behind our increase to guidance. After a seamless close on our acquisition of RPC on the first business day of the year, the integration is now complete.
Conor C. Flynn: Good morning, and thanks for joining us.
Conor C. Flynn: I will lead off today with an update on the RPC integration, a summary of our significant first quarter leasing accomplishment.
Conor C. Flynn: And a brief review of our strategic direction to go.
Conor C. Flynn: Ross will follow with an update on the transaction market and Glenn will close with a summary of our financial results major metrics and the specifics behind our increased guidance.
Conor C. Flynn: After a seamless close on our acquisition of RPC on the first business day of the year. The integration is now complete.
Conor C. Flynn: Most important is that in almost all aspects as it relates to RPP, we are ahead of our underwriting expectations in terms of timing, performance, and the select monetization of their assets. The new portfolio is performing well, producing over 3% same site NOI for the quarter and revealing exciting growth opportunities that were either not previously underwritten or an overly conservative assumption. This includes greater ancillary income, better than expected credit losses, and the lease-up of shops. We are very excited about the prospects for the new combination going forward. And many thanks to our talented team, including our newest associates, for this smooth integration.
Conor C. Flynn: Most important is that in almost all aspects as it relates to RPT. We are ahead of our underwriting expectations in terms of timing performance and the select monetization of their assets.
Conor C. Flynn: The new portfolio is performing well producing over 3% same store NOI for the quarter and reviewing exciting growth opportunities that were either not previously underwritten or overly conservative assumptions.
Conor C. Flynn: Includes greater ancillary income better than expected credit loss and the lease up of shop space.
Conor C. Flynn: We are very excited about the prospects for the new combination going forward and many thanks to our talented team, including our newest associates on the smooth integration.
Conor C. Flynn: From a cost synergies perspective, at this early point in the year, we're ahead of expectations and anticipate reaching the high end of the stated range of $34 million in 2024. The better-than-expected results are attributable to our execution of planned dispositions ahead of schedule, as well as the implementation of lessons learned from Weingarten, including accurate underwriting of hiring needs and a more rapid approach to decommissioning office space and eliminating duplic Kimco's operating platform is delivering efficiencies due to the clustering of additional assets in our core trade areas, as well as the strategic investments we've made over the past five years in technology, talent, and other areas.
Conor C. Flynn: From a cost synergies perspective at this early point in the year were ahead of expectations and anticipate reaching the high end of the stated range of $34 million in 2024.
Conor C. Flynn: The better than expected results are attributable to our execution of planned dispositions ahead of schedule as well as the implementation of lessons learned from weingarten, including accurate underwriting them hiring needs in a more rapid approach to decommissioning office space and eliminating duplicative services Kimco operating platform is delivering efficiencies.
Conor C. Flynn: Due to the clustering of additional assets in our core trade areas as well as the strategic investments we've made over the past five years technology talent and other areas turning to our first quarter leasing results. The portfolio generated same store NOI growth of 3.9% Inc.
Conor C. Flynn: Turning to our first quarter leasing results, the portfolio generated same-site NOI growth of 3.9%. The increase includes 2.8% growth from higher minimum rents and a combination of lower landlord expenses, lower credit loss, and higher net recovery. Pro rata occupancy came in at 96%, which represents a decrease of 20 basis points from last quarter but also an improvement of 20 basis points from a year ago. The change from last quarter was primarily due to the RPT merger and the vacating of four Rite-A-Look.
Conor C. Flynn: The increase includes two 8% growth from higher minimum rent.
Conor C. Flynn: A combination of lower landlord expenses, lower credit losses, and higher net recoveries.
Conor C. Flynn: Pro rata occupancy came in at 96%, which represents a decrease of 20 basis points from last quarter, but also an improvement of 20 basis points from a year ago.
Conor C. Flynn: The change from last quarter was primarily due to the <unk> merger and the vacating of all Rite aid locations.
Conor C. Flynn: Prorata occupancy was also off 20 basis points to 97.8% and flat from a year ago. Small shop occupancy was down 20 basis points from last quarter to 91.5% as a result of the RBT merger, while still up 80 basis points from a year ago. Excluding the impact of RBT, small shop occupancy actually would have increased 20 basis points sequentially and represents a future upswing. During the first quarter, we leased over 4 million square feet, including 143 new leases, signed with positive leasing spreads of 35.5%.
Conor C. Flynn: Occupancy was also up 20 basis points to 97, 8% and flat from a year ago.
Conor C. Flynn: Small shop occupancy was down 20 basis points from last quarter to 91, 5% as a result of the RPT merger, while still up 80 basis points from a year ago, excluding the impact of RPG small shop occupancy actually would have increased 20 basis points sequentially and represents a future upside.
Conor C. Flynn: During the first quarter, we leased over 4 million square feet, including 143, new leases signed the positive leasing spreads of 35, 5%.
Conor C. Flynn: We continued our strong trend with over 400 renewals and options completed at an overall positive spread of 7.8%. Overall, combined spreads were 10.2% on 583 deals. Our lease-to-economic occupancy spread now stands at 330 bases, representing a 20 basis point compression for the last quarter as leases commenced and represent 63.4 million of annual base rent with about 18 million expected to come online during the remainder of 2024. Our strong quarterly results give us confidence to raise our full year guidance for both FFO and same site NOI, which Glenn will provide further color on.
Conor C. Flynn: Continued our strong trend over 400 renewals and options completed at an overall positive spread of seven 8% overall combined spreads were 10, 2% on 583 deal.
Conor C. Flynn: Our lease to economic occupancy spread now stands at 330 basis points, representing a 20 basis point compression, but last quarter at least as commit and represented 63 4 billion of annual base rent was about $18 million expected to come online during the remainder of 2024.
Conor C. Flynn: Our strong quarterly results give us confidence to raise our full year guidance for both <unk> and same site NOI, which Glen will provide further color around.
Conor C. Flynn: Recognizing the importance of growing in a high-inflation environment, we remain focused on trimming non-critical expenses. Further, we have strategically positioned our open-air grocery and mixed-use portfolio in first-string suburbs of select, vibrant, major metropolitan areas. These high barriers to entry markets continue to represent the sweet spot of the retail landscape as new supply remains constrained and demand from our best-in-class tenants remains strong.
Conor C. Flynn: Recognizing the importance of growing in a high inflation environment, we remain focused on trimming noncritical expenses.
Conor C. Flynn: Further we have strategically positioned our open air grocery and mixed use portfolio and first drink suburb of select vibrant major metropolitan areas.
Conor C. Flynn: High barrier to entry markets continue to represent the sweet spot of the retail landscape as new supply remains constrained.
Conor C. Flynn: Man from our best in class tenants remained strong.
Ross Cooper: Thank you and good morning. It was a busy quarter of execution for Kimco, and we're pleased with our current position and what we've accomplished year to date. Just three short months ago, on the fourth quarter earnings call, I mentioned the optimism in the transactions environment coming off of a dip in the Treasury rate and expectations for Fed rate cuts in 2024. However, the optimism was short-lived as inflation has remained sticky, dampening the prospect of interest rate cuts and transaction activity.
Conor C. Flynn: Yes.
Speaker Change: Thank you and good morning, it was a busy quarter of execution for Kimco and we're pleased with our current positioning and what we've accomplished year to date.
Speaker Change: Three short months ago on our fourth quarter earnings call I mentioned, the optimism and the transactions environment coming off of a dip in the treasury rate and expectations for the fed rate cuts in 2024.
Speaker Change: The optimism was short lived as inflation has remained sticky dampening the prospect of interest rate cuts and transaction activity.
Ross Cooper: Notwithstanding the macro challenges, we were able to successfully complete the RPT sales consistent with our underwriting expectations, as Conor shared. We sold 10 former RPT centers in the first quarter at a level of sales and cap rates in line with the previously provided guidance ranges, as well as a similar cap rate on the overall RPT company acquisition that was completed this January. In addition, we negotiated to retain a slice of the capital stack on eight of the sold assets in the form of mezzanine financing, which allows us to continue to earn a double-digit yield on a secure income.
Speaker Change: Notwithstanding the macro challenges, we were able to successfully complete the RPT sales consistent with our underwriting expectations as Conor shared.
Speaker Change: We sold 10, former RPT centers in the first quarter with the level of sales and cap rates in line with our previously provided guidance ranges as well as a similar cap rate on the overall RPT company acquisition that was completed this January.
Speaker Change: In addition, we negotiated to retain a slice of the capital stack on eight of the sold assets in the form of mezzanine financing, which allows us to continue to earn a double digit yield on a secure income stream.
Ross Cooper: With these sales completed ahead of schedule, we have executed on the majority of our disposition targets for 2024. We can now focus our efforts on new investment activity throughout the balance of the year. Glenn will soon provide more details.
Speaker Change: With these sales completed ahead of schedule, we have executed on the majority of our disposition targets for 2024.
Speaker Change: We can now focus our efforts on new investment activity throughout the balance of the year.
Speaker Change: Glenn will soon provide more details on this speaking of investment activity. We've also closed on a pair of structured investments one during the first quarter and the second subsequent to quarter end.
Ross Cooper: Speaking of investment activity, we have also closed on a pair of structured investments, one during the first quarter and the second subsequent to quarter end. Both properties align with our strategy of investing in high-quality real estate supported by strong tenancy and demographics with seasoned operators. We also have a right of first offer or refusal embedded in our position.
Speaker Change: Both properties align with our strategy of investing in high quality real estate supported by strong tenancy and demographics with seasoned operators.
Speaker Change: We also have a right of first offer or refusal embedded in our position.
Ross Cooper: The total Kimco investment in the two properties was modest at $17 million, but the value of the two centers combined is upwards of $175 million, allowing us to get our foot in the door on a potential future acquisition opportunity. We expect there will be additional unique and attractive structured investment opportunities as our capital remains in high demand. On the core acquisition front, we have maintained our disciplined approach to investing at a spread to our cost of capital.
Speaker Change: Total kimco investment and the two properties was modest at $17 million, but the value of the two centers combined is upwards of $175 million, allowing us to get our foot in the door on a potential future acquisition opportunity.
Speaker Change: We expect there will be additional unique and attractive structured investment opportunities as our capital remains in high demand.
Speaker Change: On the core acquisition front, we have maintained our disciplined approach to investing at a spread to our cost of capital.
Ross Cooper: Asset pricing remains strong, as we have seen major market infill grocery and high-quality convenience centers still trading at plus or minus 6% cap rates and, in some cases, even below that. While this is a testament to the fundamental strength of the open air retail platform, it has not been easy to find creative opportunities through the first four months of the year. We remain confident in our ability to source and secure properties that align with our return thresholds.
Speaker Change: Asset pricing remains strong as we have seen major market infill grocery and high quality convenient centers still trading at plus or minus 6% cap rates and in some cases, even below that.
Speaker Change: While this is a testament to the fundamental strength of the open air retail platform. It has not been easy to find accretive opportunities through the first four months of the year we've.
Speaker Change: We remain confident in our ability to source and secure properties that align with our return thresholds and given our selective approach it'll likely pushed more of our acquisition activity toward the late second half of the year.
Ross Cooper: And given our selective approach, it'll likely push more of our acquisition activity toward the late second half of the year. Now off to Glenn for the financial results and updates on our progress. Thanks, Ross, and good morning.
Speaker Change: Now off to Glenn for the financial results and updates to our outlook. Thanks, Ross and good morning, 2024 is off to a strong and active start as Conor mentioned, our first quarter results are highlighted by solid leasing activity double digit leasing spreads and robust same site NOI growth.
Glenn Gary Cohen: Thanks Russ and good morning. 2024 is off to a strong and active start. As Connor mentioned, our first quarter results are highlighted by solid leasing activity, double-digit leasing spreads, and robust same-site NYC. These positive operating metrics drove our strong FFO per share growth excluding merchant. All our metrics are inclusive of the $2.3 billion RPT acquisition, which we completed on the first business day of 2024. While we are providing insight on the RPT contribution for the first quarter, we do not plan to continue breaking out that performance as operations are fully integrated.
Glenn Gary Cohen: These positive operating metrics drove our strong <unk> per share growth excluding merger costs.
Glenn Gary Cohen: Well our metrics are inclusive of the $2.3 billion RPT acquisition, which we completed on the first business day of 2024.
Glenn Gary Cohen: While we are providing insight on the RPT contribution for the first quarter, we do not plan to continue breaking out that performance as operations are fully integrated.
Glenn Gary Cohen: Now for some details on our first quarter results. FFO was $261.8 million, or $0.39 per diluted share, which included merger charges of $25.2 million, or $0.04 per diluted share. Our strategic and timely acquisition of RPT resulted in several significant contributors to our improved performance, primarily our higher pro rata NLI. Importantly, RPT is running ahead of all our underwriting expectations, as Connor highlighted. Excluding the merger charges, FFO would have been $0.43 per diluted share for the first quarter as compared to $238.1 million, or $0.39 per diluted share for the first quarter last year, representing a 10.3% per share increase.
Glenn Gary Cohen: Now for some details on our first quarter results.
Glenn Gary Cohen: <unk> was 261 8 million or <unk> 39 per diluted shares which includes merger charges of $25 2 million.
Glenn Gary Cohen: <unk> per diluted share.
Glenn Gary Cohen: Our strategic and timely acquisition of RPT resulted in several significant contributors to our performance primarily on higher pro rata NOI.
Glenn Gary Cohen: Importantly, our P. P is running ahead of all our underwriting expectations as kind of highlighted.
Glenn Gary Cohen: Excluding the merger charges <unk> would have been 43 cents per diluted share for the first quarter as compared to $238 1 million or 39 cents per diluted share for the first quarter last year, representing a 10, 3% per share increase.
Glenn Gary Cohen: The primary driver of our improved performance was our higher ProRata NLI of 53.7 million, of which 38 million was generated by the RPT site. ProRata and Hawaii also benefited from higher minimum rents coming from the commencement of the sign not occupied pipeline and lower credit. The credit loss for the first quarter of 2024 was $62,000.
Glenn Gary Cohen: The primary driver of our improved performance was our higher pro rata NOI of $53 7 million of which 38 million was generated by the RPT sites.
Glenn Gary Cohen: Pro rata in Hawaii also benefited from higher minimum rents coming from commencement from the signed not occupied pipeline and lower credit loss.
Glenn Gary Cohen: Credit loss for the first quarter 2024 was 62 basis points as compared to 92 basis points for the first quarter of last year. In addition included in the NOI increase is GAAP income of $1 1 million from the RPT acquisition related to straight line and above and below market rent.
Glenn Gary Cohen: As compared to 92 basis points for the first quarter of last year. In addition, included in the NOI increase is gap income of $1.1 million from the RPT acquisition related to straight line and above and below market rent average. FFO also benefited from higher interest income of $7.4 million attributable to higher cash balances during the quarter. We view this as a non-recurring item and do not expect this to continue for the remainder of the year as we have significantly utilized most of our cash in the first quarter towards the closing of the RPT acquisition and debt reduction.
Glenn Gary Cohen: Amortization.
Glenn Gary Cohen: <unk> also benefited from higher interest income of $7 4 million attributable to the higher cash balances during the quarter.
Speaker Change: We view this as a nonrecurring item do not expect this to continue for the remainder of the year as we have significantly utilized most of our cash in the quarter towards the closing of the RPT acquisition and debt reduction.
Glenn Gary Cohen: These increases were offset by greater pro rata interest expense of $14.6 million, resulting from the higher interest rate on the $646 million of bonds that were recently refinanced, lower fair market value amortization related to the former Weingarten bonds, and higher rates on the floating rate debt in our joint. Our FFO for the first quarter also includes about a penny per share of other non-recurring income items, with a one-time benefit of $2.4 million in below- It was a very active quarter from a balance sheet perspective, primarily resulting from the RPT acquisition, much of which was already addressed in our last earnings report.
Speaker Change: These increases were offset by greater pro rata interest expense of $14 6 million, resulting from the higher interest rate on the $646 million of bonds that were recently refinanced lower fair market value amortization related to the warm in weingarten bonds and higher rates on our floating rate debt and our joint ventures.
Speaker Change: Our <unk> for the first quarter also includes about a penny per share of other nonrecurring income items with a onetime benefit of $2 4 million and below market rents from two tenants that vacated early in two and a half million of other income. It was a very active quarter from a balance sheet perspective, primarily resulting from the RPT.
Speaker Change: Acquisition much of which was already addressed on our last earnings call. Just to briefly summarize we issued 53 million common shares at 953000 O P units.
Glenn Gary Cohen: Just to briefly summarize, we issued 53 million common shares and 953,000 OP units and replaced RPT 7.25% convertible preferred stock with a liquidation value of 92.5 million with a new Kimco convertible preferred issuance with similar terms. We also repaid RPT's $130 million revolving credit facility and their $514 million of private placement notes from cash on our balance sheet, amended, and assumed 310 million of RPT term loans, which have staggered maturities from 2026 to 2028, at a blended weighted average rate of 4.77%.
Speaker Change: And replaced RPT, 7.25% convertible preferred stock with a liquidation value of $92 5 million with a new kimco convertible preferred issuance with similar terms.
Speaker Change: We also repaid RPT is $130 million revolving credit facility and there are $514 million of private placement notes from cash on our balance sheet.
Speaker Change: Amended and assumed $310 million of RPT term loans, which have staggered maturities from 2026 to 2028 at a blended weighted average rate of 477% and issued a new $200 million term loan with a final maturity in 2029 at a fixed rate of four <unk>.
Glenn Gary Cohen: And issued a new $200 million term loan with a final maturity in 2029 at a fixed rate of 4.57%. As previously mentioned, we monetized our remaining shares in Albertsons earlier in the quarter, receiving nearly $300 million in proceeds, and recorded a $72 million tax provision on the game.
Speaker Change: Five 7%.
Speaker Change: As previously mentioned, we monetize our remaining shares in Albertsons earlier in the quarter, receiving nearly $300 million in proceeds and recorded a $72 million tax provision on the gain.
Glenn Gary Cohen: At the end of the first quarter, our liquidity position remains very strong with over $2 billion of immediate availability and no remaining debt maturities for the balance of the year. Our balance sheet further strengthened as the company's leverage metrics improved once again. We ended the first quarter with a consolidated net debt to EBITDA ratio of 5.3 times and, on a look-through basis, including pro rata share of joint venture debt and perpetual preferred stock outstanding of 5.6%. The look-through metric of 5.6 times is the best level Kimco has ever achieved and an improvement from the 6.2 times reported a year ago.
Speaker Change: At the end of the first quarter, our liquidity position remains very strong with over $2 billion of immediate availability and no remaining debt maturities for the balance of the year.
Speaker Change: Our balance sheet further strengthened as the company's leverage metrics improved once again.
Speaker Change: We ended the first quarter with a consolidated net debt to EBITDA ratio of five three times and I'll have a look through basis, including pro rata share of joint venture debt and perpetual preferred stock outstanding of five six times. The look through network of five six times is the best level Pimco has ever achieved.
Speaker Change: And an improvement from the 6.2 times reported a year ago, turning to our outlook based on our strong first quarter results. The successful integration of the RPC acquisition and our expectations for the balance of the year, we are raising our <unk> per diluted share range from $1 54 to $1 58.
Glenn Gary Cohen: Turning to our outlook, based on our strong first quarter results, the successful integration of the RPT acquisition, and our expectations for the balance of the year, we are raising our FFO per diluted share range from $1.54 to $1.58 to a new range of $1.56 to $1.60, inclusive of $0.04 per share for the RPT merger. Excluding the merger costs, this represents a 3.2% annual FFO per share growth at Our increased FFO per share guidance range incorporates the following updates to our full year assumptions.
Speaker Change: To a new range of $1 56 to $1 60 inclusive of whatsapp per share for RPT merger costs.
Speaker Change: Excluding the merger costs. This represents a three 2% annual <unk> poker share growth at the midpoint of the increased guidance range over last year's results.
Glenn Gary Cohen: Higher SaneSite NOI growth of 2.25% to 3% from the previous level of 1.5% to 2.5% and is inclusive of the RPT assets and a credit loss assumption of 75 basis points to 100%. Interest income of $10 million to $12 million based on the interest income earned during the first quarter and RTT related non-cash GAAP accounting income comprised of straight line rents and above and below fair market value rent amortization of $4 million to $5, Our other full-year FFO guidance assumptions remain intact, including our disposition range of $350 million to $450 million, inclusive of the $250 million completed during the first quarter, and investment range of $300 million to $350 million weighted toward the late second half of the year.
Speaker Change: Our increased <unk> per share guidance range incorporates the following updates to our full year assumptions.
Speaker Change: Same site NOI growth of 2.25% to 3% from the previous level of one 5% to two 5% and is inclusive of the RPT assets and a credit loss assumption of 75 basis points to 100 basis points.
Speaker Change: Interest income of 10 million to 12 million based on the interest income earned during the first quarter and our P. T related noncash GAAP accounting income comprised of straight line rents and above and below fair market value ran amortization of 4 million to 5 million.
Speaker Change: Our other full year <unk> guidance assumptions remain intact, including our disposition range of $350 million $150 million inclusive of the 250 million completed during the first quarter.
Speaker Change: And investment range of 300 million to $350 million weighted toward the late second half of the year.
Glenn Gary Cohen: I want to thank all our associates whose incredible effort efficiently completed the integration of the RPT transaction and contributed to our strong first quarter results. And with that, we are ready to take. We will now begin the question and answer session. To ask a question...
Speaker Change: I want to thank all of our associates, whose incredible effort efficiently completed the integration of the RPT transaction and contributed to our strong first quarter results.
Speaker Change: And with that we're ready to take your questions.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: We will now begin the question and answer session.
Speaker Change: I ask a question you May press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two we request that you limit yourself to one question. If you have a follow up you.
Operator: If at any time your question has been addressed and you would like to withdraw it, please press star, then two. We request that you limit yourself to one question. If you have a follow-up, you may rejoin the queue at any time. At this time, we will pause momentarily to assemble our roster. Our first question comes from Dori Kesten of Wells Fargo. Please go ahead. Thanks. Good morning.
Speaker Change: May rejoin the queue at any time at.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Dori Kesten of Wells Fargo. Please go ahead.
Dori Lynn Kesten: Hi, Thanks, good morning.
Dori Lynn Kesten: He's left here your credit loss guide unchanged, but had a relatively low Q1 can you just remind us of your current exposure that has built that kidney annual assumption.
Dori Lynn Kesten: Oh overall overall, yeah, we look at the entire portfolio when we're doing the assumptions and again the 75 to 100 basis point credit assumption is really back to what historic levels in the first quarter is clearly lower at 62 basis points.
Dori Lynn Kesten: There are some.
Dori Lynn Kesten: Bankruptcies potentially doing here that can impact it and we think it's more prudent to just leave the current guidance assumptions, even though we still have been able to increase same site NOI guidance pretty significantly.
Speaker Change: Okay. Thank you.
Michael Goldsmith: The next question comes from Michael Goldsmith of UBS.
Glenn Gary Cohen: Overall, overall, you know, we look at just the entire portfolio when we're doing the assumptions. And again, the 75 to 100 basis point credit assumption is really back to more historic levels. And the first quarter is clearly lower at 62 basis points. But, you know, there are some potential bankruptcies potentially during the year that could impact it. And we think it's more prudent to just leave the current guidance assumption. Okay, thank you. The next question comes from Michael Goldsmith of UBS. Please go ahead. Good morning. Thanks a lot.
Speaker Change: The next question comes from Michael Goldsmith of UBS. Please go ahead.
Michael Goldsmith: Good morning, Thanks, a lot, particularly my question on the integration of RPT, you said, our initial S. G&A synergies of $30 million to $34 million you took it up to 34 to 35 billion. So in terms of realizing these synergies what's driving them, what's driving the upside to your initial guidance and.
Michael Goldsmith: We're going to get there where have they been positive surprises as you've started to see.
Dori Lynn Kesten: What's the plan to action.
Conor C. Flynn: Thanks, Michael. Obviously, we're off to a great start with the integration. Clearly, we have a great blueprint. And you know, the muscle memory from Weingarten certainly helps.
Speaker Change: Sure. Thanks, Michael.
Speaker Change: Obviously, we're off to a great start with the integration I'm clearly we have a great blueprint and you know the muscle memory from Weingarten certainly helps.
Dori Lynn Kesten: Hub will teichman comments, a little bit about the G&A synergies and what's out there, but on the revenue synergy side, where we're obviously seeing a lot of deal flow earlier than anticipated.
Dori Lynn Kesten: For the quarter 10 deals were signed in the RPT portfolio at rents of $31 a foot a 36% new leasing spreads of 10, 8% renewals. So for a combined 14, 1%. So when you look at those numbers, it's obviously enhancing to the kimco portfolio and the business plan was it was was always set up where we were.
Will Teichman: I'll have Will Teichman comment a little bit about the G&A synergies and what's helped there. But on the revenue synergy side, we're obviously seeing a lot of deal flow earlier than anticipated. Just for the quarter, 10 deals were signed in the RPT portfolio at rents of $31 a foot, 36% new leasing spreads, you know, 10.8% renewals. So for a combined 14.1%. So when you look at those numbers, it's obviously an enhancement to the Kimco portfolio.
Dori Lynn Kesten: Executing on a strategy, where we could buy the portfolio at a we believe at an attractive cap rate and even a half cap rate and then selling off the lowest tranche at similar cap rates are we felt like would allow us to really retain a very high quality high growth profile portfolio that with our platform could be enhanced.
Will Teichman: And the business plan was always set up where we would execute on a strategy where we could buy the portfolio at an, we believe, an attractive cap rate, an eight and a half cap rate, and then sell off the lowest tranche at similar cap rates, which we felt would allow us to really retain a very high quality, high growth profile portfolio that, with our platform, could be enhanced over time. And so Will, I'd love for you to comment quickly on the G&A synergies as well.
Speaker Change: Over time, and so we'll I'd love for you to comment quickly on the the G&A synergies as well.
Will Teichman: Thanks, Connor, and good morning, Michael. As Connor said, we concluded the integration of portfolio operations, systems, and human capital. We did it within a matter of weeks, saving about two months off the timeline versus our prior transaction with Weingarten. And as Connor mentioned, the playbook that we established post-Weingarten has really been key to that, developing an integration governance model, tools, and processes that are repeatable for future transactions.
Speaker Change: Sure, Thanks, Conor and good morning, Michael.
Speaker Change: As Conor said, we concluded the integration of portfolio operations systems and human capital, we did it within a matter of weeks saving about two months off the timeline versus our prior transaction with weingarten.
Speaker Change: And as Conor mentioned, the playbook and we have established post weingarten has really been key to that developing.
Speaker Change: And integration governance model tools and processes that are repeatable for for future transactions.
Will Teichman: On the expense side, as with any M&A transaction in our sector, human capital is always the most significant driver of G&A. And so speeding up the pace of integration activities avoids carrying unnecessary expenses during the transition period. A few drivers of note that I would call out. First, the quick execution of the 10 asset sales that Ross mentioned in his comments allows us to hold to a more conservative staffing plan, as we don't need to staff positions necessary to operate these assets.
Speaker Change: On the expense side as with any M&A transaction in our sector human capital is always the most significant driver of G&A and so speeding up the pace of integration activities avoids carrying unnecessary expenses during the transition period. A few drivers of note that I would call out first a quick execution of the 10 asset sales that Ross mentioned in his comments.
Speaker Change: <unk> allows us to hold to a more conservative staffing plan as we don't need to staff positions necessary to operate these assets.
Will Teichman: Secondly, a more rapid pace of integration allowed us to minimize the need for transitional employees over the first few months of the year. Overall, our underwriting assumptions for permanent associates were on target, and we filled all of the incremental positions, solidifying our go-forward G&A expense levels to operate the portfolio. And finally, beyond staffing, one of the other noteworthy areas where we've exceeded underwriting is around professional services and subscriptions. Our IT and legal teams led an effort to quickly exit over 100 service agreements, and as a result, we're seeing faster accretion in this important area.
Speaker Change: A more rapid pace of integration allowed us to minimize the need for transitional employees.
Speaker Change: The first few months of the year overall, our underwriting assumptions for permanent associates or.
Speaker Change: On target and we filled all of the incremental positions solidifying our go forward G&A expense levels to operate the portfolio and finally beyond staffing one of the other noteworthy areas, where we've exceeded underwriting is around professional services and subscriptions.
Speaker Change: Our I T and legal team led an effort to quickly exit over 100 service agreements and as a result, we're seeing faster accretion in this important area.
Conor C. Flynn: Thanks, Will. I'll just comment that with the execution of the 10 dispositions, the grocery percentage of the RPT portfolio is up to 85.5%. So it's obviously an enhancement to the Kimco portfolio as well. We even have activity on a few of the nine remaining sites that don't have grocery anchors to potentially convert those to grocery anchors as well. So Will, do you want to comment a little bit on ancillary income as well? Sure, you know, with respect to
Speaker Change: Thanks will.
Speaker Change: Comment that with the execution of the 10 dispositions the the grocery percentage of the RPT portfolio was up to 85, 5%. So it's obviously enhancing to the kimco portfolio as well, we even have activity on a few of the nine remaining sites that don't have grocery anchors.
Speaker Change: Potentially convert those to grocery anchors as well so well do you want to comment a little bit on ancillary income as well.
Will Teichman: Sure. You know, with respect to ancillary income, it's one of the areas where, as a company, we've been working to build out a national specialty leasing team that's exclusively dedicated to this important area. That's not the case with all of our peers, and it wasn't the case with RPT, where they had only recently established a focus around ancillary revenues. We have a 10-year track record in this area, and as Connor referenced in his remarks, we started off the year with double-digit growth relative to the first quarter of 2023 in terms of RPT's performance in this area.
Speaker Change: Sure.
Speaker Change: Yeah with respect to ancillary income, which is one of the areas where as a company we've been working.
Speaker Change: To build out a national specialty leasing team that's exclusively dedicated to this important area.
Speaker Change: Not the case with all of our peers and it wasn't the case with RPT or they had only recently established a focus around ancillary revenues.
Speaker Change: Have a 10 year track record in this area and then Scott referenced in his remarks.
Speaker Change: We started off the year with double digit growth relative to first quarter of 2023 in terms of Rpt's performance in this area.
Will Teichman: And it really comes through a variety of different strategies. You know, we track probably over a dozen different ancillary revenue income streams, and it's a combination of strategies that we have employed across our portfolio to monetize common areas, as well as tactics to monetize and lease up, on a temporary basis, vacant inline space. And knowing that the vacancy is a little bit higher in the RPT portfolio provides some near-term upside for us in terms of temporary leasing.
Speaker Change: And it really comes through a variety of different strategies.
Speaker Change: You know, we track probably over a dozen different ancillary revenue income streams and it's a combination of strategies that we have employed across our portfolio to monetize common areas as well as the tactics to monetize and lease up on a temporary basis, they can inline space and knowing that the.
Speaker Change: I can see is a little bit higher and the RPT portfolio provide some near term upside for us in terms of temporary leasing.
Speaker Change: Thank you very much very helpful.
Alexander David Goldfarb: The next question comes from Alexander Goldfarb of Piper Sandler.
Speaker Change: The next question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.
Conor C. Flynn: Hey, good morning out there. Connor, clearly, you know, RPT, it sounds like, you know, whether very conservative or sandbagging, you guys were pretty cautious on how you underwrote it sounds like there's a lot of operational synergies on the cost side, but maybe you could just outline a bit more on the NOI side, what the upside is. And, you know, it sounds like there's, you know, I don't know if it's 50 basis points or 100 basis points better. Transcripts provided by Transcription Outsourcing, LLC.
Alexander David Goldfarb: Hey, good morning out there.
Alexander David Goldfarb: So cotter clearly you know RPT it sounds like.
Alexander David Goldfarb: You know weather very conservative or sandbagging.
Alexander David Goldfarb: You guys were pretty cautious on how you underwrote it sounds like Theres a lot of operational synergies on the cost side, but maybe you could just outline a bit more on the NOI side, what the upside is and yeah. It sounds like there is you know I don't know if its 50 basis points or 100 basis points better on the yield, but just sort of a magnitude.
Alexander David Goldfarb: Of the sort of NOI performance that youre seeing out of it in.
Alexander David Goldfarb: In addition to what you're seeing on the cost savings and synergy side.
Conor C. Flynn: Sure, happy to, Alex. And again, I gave you some stats there on the RPT portfolio, but we gave ourselves, I think, a nice runway to execute. And we've obviously been ahead of that assumption. So, you know, for the first year, we thought there would be a ramp-up in terms of, you know, leasing, and they thought there might be, you know, again, a transition period where we wouldn't have similar Kimco velocity on the RPT portfolio. And that just hasn't been the case.
Speaker Change: Sure happy to Alex and again I gave you some stats there on the RPT a portfolio, but we gave ourselves I think a nice runway to execute and we've obviously been ahead of that assumption. So you know for the first year. We had we thought where there will be a ramp up in terms of leasing and they thought there might be you know.
Speaker Change: Again, a transition period, where we wouldn't have similar kimco velocity on the RPT portfolio.
Speaker Change: And that just hasn't been the case, we've been able to transition very quickly we'd be able to lease up a lot of space relatively quickly and retain tenants at higher rents as well. So you know the original underwriting had a.
Conor C. Flynn: We've been able to transition very quickly. We've been able to lease up a lot of space relatively quickly and retain tenants at higher rents as well. So, you know, the original underwriting had a six to 12 month period of ramp-up to transition to Kimco, and we've been able to exceed the leasing velocity on that. And there are there are some hidden gems as well that we didn't originally anticipate uncovering. So, you know, a lot of those deals that we're working on, like I mentioned, on transitioning some of these assets to grocery-anchored assets take time, but we're ahead of anticipation on that as well. Yeah, I'd also mention...
Speaker Change: Six to 12 month period of ramp it's a transition to to kimco and we've been able to exceed the leasing velocity on that and there's there's some there's some hidden gems as well that we didn't originally anticipate uncovering. So you know a lot of those deals that we're working on like I mentioned on the transitioning some of these assets to grocery anchored assets.
Speaker Change: Take time, but we're we're ahead of our anticipation on that as well.
Conor C. Flynn: And that enabled us to meet and exceed some of the snow pipeline compression as well that we saw this quarter with RPT, and we were able to get some key tenants open very early in the year that will now benefit through the balance of the year. So obviously, in our snow, we saw some good pressing, about 20 basis points, but we saw more compression on the RPT side, just because a few big anchors actually opened in the beginning part of the year.
Conor C. Flynn: Yeah, I'd also mention when we took over the portfolio, there was always a risk in transition, especially on the construction side, when you hand off projects from one company to the other. And, you know, despite the handoff period, these projects still need to get done, there's still targets that need to be met, there's still lease obligations to fulfill. And as a result of that, you know, from day one, and really prior to the transaction, we're preparing for that.
Speaker Change: Yeah, I don't I'd also mentioned when we when we took over the portfolio. There is always a risk in transition, especially on the construction side. When you hand off projects from one company to the other end.
Conor C. Flynn: Yeah. Despite the handoff period these projects still need to get done and they are still targeting that.
Conor C. Flynn: There is still lease obligations to fulfill and as a result of that you know from day, one and really prior to the transaction. We are preparing for that and that enabled us to meet and exceed some of the snow pipeline compression as well that we saw this quarter with RPG enable to get some key tenants open.
Speaker Change: Early in the year that will now benefit from through the balance of the year. So obviously in our in our snow we saw some some good quarter comprising about 20 basis points, but we saw more compression on the RPT side.
Conor C. Flynn: Just because a few big anchors actually opened in the beginning part of the year or so.
Conor C. Flynn: Again hats off to everyone. It's not easy sometimes you know we never want to take it for granted odd yeah on the integration side, but really the team is laser focused not only doing that but then also executing just fundamentals on our core business with kimco to make sure we had an outstanding quarter.
Conor C. Flynn: So again, hats off to everyone, it's not easy. Sometimes, you know, we never want to take it for granted on the integration side, but really, the team was laser focused, not only doing that, but then also executing just fundamentals on the core business with Kimco to make sure we had an outstanding quarter.
Speaker Change: Thank you.
Floris Gerbrand Hendrik Van Dijkum: The next question comes from Floris Van Dijkum of Compass Point.
Speaker Change: The next question.
Conor C. Flynn: <unk> comes from Floris van <unk> of Compass point.
Speaker Change: Please go ahead.
Floris Gerbrand Hendrik Van Dijkum: Morning, guys. Thanks. A nice, positive result, I guess.
Floris Gerbrand Hendrik Van Dijkum: Okay.
Speaker Change: Good morning, guys. Thanks nice.
Speaker Change: Positive result, I guess yeah.
Speaker Change: Couple of questions, but I guess I'm I'm going to focus my question too to Ross <unk>.
Ross Cooper: You know, a couple of questions, but I guess I'm going to focus my question on Ross. I know you mentioned, Ross, that the cap rates for grocery anchors are pretty tight in particular. As you think about deploying capital going forward, can you maybe talk a little bit about your views on lifestyle centers and why you wouldn't pivot more, why would not, why wouldn't Kimco pivot more towards lifestyle acquisitions, or are you wedded to acquiring and increasing your percentage of grocery anchored in your holdings?
Ross Cooper: I know you mentioned Ross that the cap rates for grocery anchored are pretty tight in particular.
Ross Cooper: Hum.
Ross Cooper: Do you think about deploying capital.
Ross Cooper: Ah going forwards.
Ross Cooper: Can you maybe talk a little bit on your views on on the lifestyle centers.
Ross Cooper: And why wouldn't you pivot more why would not why wouldn't kimco pivot more towards lifestyle acquisitions or are you wedded to a.
Ross Cooper: To acquiring an increasing your percentage of grocery anchored in your in your holdings.
Ross Cooper: Yeah thanks Floris, it's a good question and I think one of the benefits when you look at Kimco is that we do own and have operational expertise in sort of all formats of open-air retail. We do love the grocery anchored and with lifestyle as well, many of those assets have a grocery component that you get the benefit of. When you look at the acquisition that we made last year with Stonebridge, that's a prime example of a dominant Wegmans anchored center that had a lifestyle component and based upon the size we were able to buy that at a high cap rate north of seven because the deal size was a bit larger and because of the operational expertise that it requires to manage and operate those assets is a more limited buyer pool that we think gives us a differentiation.
Ross Cooper: Yeah. Thanks, Laura So it's a good question I think one of the benefits. When you look at Kimco is that we do own and have operational expertise in sort of all formats of open air retail, we do love the grocery anchored and with lifestyle as well many of those assets have a grocery component that you get the benefit of a when you look at the acquisition that we made.
Ross Cooper: Last year with the Stonebridge. That's a prime example of a dominant wegmans anchored center that had a lifestyle component and based upon the size, we were able to buy that at a at a high cap rate north of seven because the deal size is a bit larger and because of the operational expertise that are required to manage and operate those assets is.
Ross Cooper: A more limited buyer pool that we think gives us a differentiation. So we're absolutely looking at those types of assets.
Ross Cooper: So we're absolutely looking at those types of assets in this environment because of how tight cap rates are on neighborhood grocery anchors, the unanchored strip center segment you've heard a lot about, there's a lot of capital flowing into that, and you've seen cap rates continue to compress on that product type. We believe that our differentiation is utilizing our platform for more complex and sometimes, you know, more difficult operational assets where we can create value that we don't believe others can, and that doesn't mean that we're not going to continue to pursue more neighborhood grocery-anchored opportunities when the pricing aligns with our cost of capital, but where we are today in the cycle, that's just what we're focusing on, and the other component is, of course, So it's certainly something that we continue to look at, and as the market continues to evolve, we'll deploy our capital in the best way possible. Floris, the only thing I would add...
Ross Cooper: This environment because of how tight cap rates are on neighborhood grocery anchor the unencumbered strip Center segment, you you've heard a lot about there's a lot of capital flowing into that you've seen cap rates continuing to compress compress on that product type. We believe that our differentiation is utilizing our platform or more complex.
Floris: And sometimes you know more.
Ross Cooper: Difficult operational assets that we can create value that we don't believe others can but that doesn't mean that we're not going to continue to pursue or neighborhood grocery anchored opportunities when the pricing aligns with our cost of capital, but where we are today in the cycle I. That's just what we're focusing on and the other component is of course, our relationship with our joint venture.
Ross Cooper: <unk> that we can continue to to look at opportunities alongside to help enhance our yield utilizing the platform with the joint venture. So it's it's certainly something that we continue to look at and as the market continues to evolve we'll deploy our capital in the best way possible.
Ross Cooper: Floris, the only thing I would add to that is that you've seen for a while the lines are blurring across all different retail formats, and what I mean by that is really the retail mix. And so you've seen sort of the best-in-class mall tenants gravitate towards open-air shopping centers. You've seen certain lifestyle-centered retailers gravitate towards all formats of open-air centers. And so I think with our operating team, we really focused on, again, enhancing the Rolodex we have.
Floris: What was the only thing I would add to that is you you've seen for a while the lines are blurring across all different retail formats. What I mean by that is really the merchandising mix and so you've seen sort of the best in class mall tenants gravitate towards open Air shopping center as you've seen certain lifestyle center retailers grabber.
Ross Cooper: Tate towards all formats of open air centers, and so I think what with our operating team, we really focused on again enhancing the role it actually happens so looking across all the different formats. They are starting to look similar to one another and making sure that we have the rolodex across all those formats had been so critical to our success and I think that's what we do well is look.
Ross Cooper: And so looking across all the different formats, they are starting to look similar to one another, and making sure that we have the Rolodex across all those formats has been so critical to our success. And I think that's what we do well, is look at how do we go about extracting the most value, enhancing the merchandising mix by utilizing that Rolodex across all different formats.
Ross Cooper: How do we go about extracting the most value having the enhancing the merchandising mix by utilizing that rolodex across all different formats.
Speaker Change: Thanks, guys.
Juan Carlos Sanabria: Thanks, Chris. Our next question comes from Juan Sanabria of BMO Capital Markets. Please go ahead. Hi, good morning. Just wanted to switch gears here.
Juan Carlos Sanabria: Our next question comes from Juan Sanabria of BMO Capital Markets. Please go ahead.
Ross Cooper: Our next question comes from Juan Sanabria of BMO capital markets. Please go ahead.
Juan Carlos Sanabria: Hi, Good morning, just wanted to switch tack here.
Juan Carlos Sanabria: In terms of the Q&A I, just wanted to get your strategic views or sense of.
Juan Carlos Sanabria: The pharmacy and health and wellness business trends in.
Juan Carlos Sanabria: Credit, they're just and we've had rite aid.
Juan Carlos Sanabria: Okay, Walgreens is shrinking and Walmart snap pulling out so just curious on how you see the space evolving.
Juan Carlos Sanabria: And how you're positioning the company just to deal with the changing landscape.
Conor C. Flynn: Sure, I think each of those has its own story. And as we know, with Rite Aid, and having to settle a lawsuit was a big disruptor for them. But it's no secret, obviously, there is disruption and, I think, a shifting landscape in the pharmacy business and how it services the customer. That said, you know, health and wellness are more at the forefront now than it ever has been with consumers, both in how they maintain themselves, with fitness, you know, mind and body really being a focus.
Juan Carlos Sanabria: Sure I think each of those have their own story and as we know with Rite aid and.
Conor C. Flynn: Settle a lawsuit was a big disruptor for them, but they're there. It's no secret obviously, there is disruption and I think a shifting landscape.
Conor C. Flynn: And the pharmacy business and how it surfaces the customer that said Oh yeah.
Conor C. Flynn: Health and wellness I think is more in the forefront now than it ever has been with with consumers both in how they maintain themselves with with fitness, yeah mind and body really being a focus.
Conor C. Flynn: Food, you know, what they're eating, how they're eating, what they're consuming, you're seeing a lot of innovation and creativity in the F&B world, new concepts, CABA, Consuming in Public, not too long ago, seeing good growth and expansion there, you're seeing some more of the traditional format, F&B, QSR concepts evolve their menus to accommodate the new consumer taste, And then you do see, you know, continued opportunity with The MedSpot Concepts, Urgent Care, and the services businesses related to the customer and then what fits well in the open-air sector. That said, individual businesses have different business models.
Conor C. Flynn: Food you know what they are eating how they are eating what they're consuming youre seeing a lot of innovation and creativity and the F&B world New concepts Cob, obviously went public.
Conor C. Flynn: Not too long ago has seen good growth and expansion there you're seeing some more of the traditional format F&B concepts evolve their menus to accommodate the new consumer taste.
Conor C. Flynn: And then you you do see you know continued opportunity with met.
Conor C. Flynn: Med spa concepts urgent care and in the services business is related to the customer and then what fits well in the open air sector that said you know individual businesses have different business models individual businesses the opportunities while others see some disruption, but I think you have to look at it more holistically where.
Conor C. Flynn: Individual businesses see opportunities, while others see some disruption. I think you have to look at it more holistically. Where is the macro trend going? I think it still very much supports it, but again, trends are cyclical, and there are always moments of disruption, and obviously, that also creates opportunities for newcomers and other entrants to evolve their business to capitalize.
Conor C. Flynn: Or is the macro trend going and I think it's still very much supports it but yeah again trends are cyclical and theres always yeah moments of disruption in and obviously that also creates opportunities for it for newcomers and and other entrants to evolve their business to capitalize on that.
Conor C. Flynn: You know, Juan, I think from a merchandising mix standpoint, the pharmacy has evolved almost to become a mini-MARTS in many ways. So when you go into a pharmacy, the script business is always in the back, and then you walk through all the aisles of higher-margin items. And I think what happened there is the script business got disrupted, and then their pricing on traditional grocery items was elevated versus other options that the consumer had.
Conor C. Flynn: You know, and I think from a
Conor C. Flynn: One I think from a merchandising mix standpoint, the pharmacy has evolved almost like become a mini marts in so many ways. So when you go into a pharmacy script business was always in the back and then you walked through all the aisles of our higher margin items and I think what happened. There is the script business got disrupted and then their pricing on the on need.
Conor C. Flynn: Call. It traditional grocery items were elevated versus other options that the consumer had and so clearly they are going through a transition period of having Amazon and others come into the prescription business and then what are the front of the house looks like so the good news from a real estate point of view is typically those deals were done on ground leases and we're dog pads.
Conor C. Flynn: So clearly, they're going through a transition period of having Amazon and others come into the prescription business, and then what the front of the house looks like. So the good news from the real estate point of view is that, typically, those deals were done on ground leases and were done on pads or positions up in front of the shopping center that are highly valuable. So I think we have the ability to recapture some of those drive-thrus, repurpose, and actually get a significant mark-to-market on spaces that we get back.
Conor C. Flynn: Our our positions up in front of the shopping center that are highly valuable. So I think we have the ability to recapture some of those with drive throughs repurpose and actually get a significant mark to market on spaces that we got back it's probably unlikely we will see a lot of them coming back to us because they typically are the most valuable pieces of real estate in the shopping center.
Conor C. Flynn: It's probably unlikely we'll see a lot of them coming back to us because they are typically the most valuable pieces of real estate in the shopping center, but it is one that I think we have the opportunity to reset if we do get our hands on a few of them.
Conor C. Flynn: It is one that I think we have the opportunity to reset if we do get our hands on a few of them.
Speaker Change: Thank you very much.
Conor C. Flynn: Thank you very much. The next question comes from Samir Khanal of Evercore ISI. Please go ahead.
Conor C. Flynn: The next question comes from Samir Khanal of Evercore ISI. Please go ahead.
Samir Upadhyay Khanal: Yeah, Conor just looked at the shop occupancy so the RPT portfolio I think sequentially. It was down 40 basis points here.
Samir Upadhyay Khanal: Is there something to read in the Rad, considering that we've seen sort of sequential increases for a while now or is that sort of you being more proactive as you sort of daily space for greater at the kidney space.
Samir Upadhyay Khanal: So that you're that was the upside of the deal for us. We actually think that that's really sort of the juice to be squeezed.
Samir Upadhyay Khanal: So that that Europe that was the upside of the deal for US we actually think that that's really sort of the the juice to be squeezed because we see the small shop momentum continuing if you look at the kimco portfolio and the sequential gain we had there and some of the obviously the leasing we had on the RPT portfolio out of the gates was where it was way ahead of our.
Samir Upadhyay Khanal: And so you know clearly when we look at the upside of the deal.
Samir Upadhyay Khanal: There's going to be a lot of momentum on the leasing side on the small shops, because some of those those shopping centers that have lower small shop occupancy are actually where we're building out anchor spaces and so for example in Florida, We've got Publix under construction the trader Joe's under construction and a lot of those small shops are baked in because there's no anchor there yet, but we know that.
Conor C. Flynn: Because we see the small shop momentum continuing. If you look at the Kimco portfolio and the sequential gain we had there. And some of the obviously the leasing we had on the RPT portfolio out of the gates was way ahead of our anticipation. So, you know, clearly, when we look at the upside of the deal, there's going to be a lot of momentum on the leasing side of the small shops because some of those shopping centers that have lower small shop occupancy are actually where we're building out anchor spaces.
Conor C. Flynn: Some of them, having those types of grocers open are gonna be significant to the leasing momentum. So it gives us a lot of cautious optimism that you know we're in the right spot, but the business model is working well we can continue to focus on executing and building out those spaces efficiently and then lease up the surrounding spaces. So so far so good in terms of the the the integration.
Conor C. Flynn: And so, for example, in Florida, we've got a Publix under construction, a Trader Joe's under construction, and a lot of those small shops are vacant because there's no anchor there yet. But we know the momentum of having those types of grocers open is going to be significant to the leasing momentum. So it gives us a lot of cautious optimism that, you know, we're in the right spot, the business models are working well, we can continue to focus on executing and building out those spaces efficiently, and then lease up the surrounding spaces. So, so far, so good in terms of integration. Yeah, I would just add that
Conor C. Flynn: I would just add that when we acquired RPP, their small shop occupancy rate, which was $1.5 million, was over 200 basis points lower than ours. So when you blended it all together, again, because it's obviously a much smaller portfolio, the impact at the end was only about 40 basis points.
Conor C. Flynn: Yeah, I would just add that when we acquired RPC there small shop occupancy was over 200 basis points lower than ours. So when you blend it all together again, because it's obviously a much smaller portfolio the impact at the end it was only about 40 basis points.
Haendel Emmanuel St. Juste: The next question comes from Haendel St. Juice of Mizuho. Please go ahead.
Speaker Change: You go to the next the next question comes from Hendel, St Juice of Mizuho.
Speaker Change: Please go ahead.
Speaker Change: Hey, there good morning wanted to follow up Ross until comments, you made about the transaction market the challenge will be deploying capital.
Speaker Change: And to dispositions from the dispositions here can.
Speaker Change: Can you talk a bit about the the range of cap rates, you're seeing out there from a quality you want to buy versus what you'd need to see to be more active.
Speaker Change: Maybe why do you think cap rates will move higher in the back of happy or perhaps see more opportunity I'm trying to get a better understanding of why you're not getting more active now and.
Speaker Change: It's J D capital could play a role as well thank you.
Ross Cooper: Sure, yeah, I mean, JV capital can certainly play a role. But to answer your question, you know, we're fortunate that we have a variety of ways to put out capital. So the acquisition, the core acquisitions, we continue to be very disciplined. You saw last year a very modest amount of traditional core acquisitions because when the market is not where our cost of capital is, we stay patient, we lean into structured, we lean into leasing, we lean into redevelopments.
Speaker Change: Sure Yeah, I mean, the the JV capital can certainly play a role but to answer your question.
Ross Cooper: We're fortunate that we have a variety of ways to put out capital. So the acquisition in the core acquisitions. We continue to be very disciplined you saw last year, a very modest amount of of traditional core acquisitions, because when the market is not where our cost of capital is we stay patient we lean infrastructure.
Ross Cooper: We lean into leasing we leaning to Redevelopments and we have other ways to place capital. So today as I mentioned, the core kind of neighborhood grocery anchored shopping centers are in that plus or minus six cap range with where we are today that doesn't necessarily fit for us.
Ross Cooper: We have other ways to invest capital. So today, as I mentioned, the core kind of neighborhood grocery-anchored shopping centers are in that plus or minus six cap range. With where we are today, that doesn't necessarily fit for us.
Ross Cooper: But our hope is that that changes either with our cost of capital being more aggressive as the year progresses.
Ross Cooper: But our hope is that that changes either with our cost of capital being more aggressive as the year progresses, or you see a little bit of a softening in the pricing, depending on macro conditions. You've seen one of our peers out in the market with a substantial amount of, call it, more Commodity Power. Those are still trading in the 7 to 7.5, upper 7 cap range.
Ross Cooper: Or do you see a little bit of a softening in the pricing depending on macro conditions.
Ross Cooper: <unk> seen one of them one of our peers out in the market with a substantial amount of call it or.
Ross Cooper: Commodity power those are still trading in the seven to seven and a half upper seven cap range.
Ross Cooper: So there's clearly capital that's chasing those assets. But we're not really focused on commodity power today that doesn't have the growth profile that we're looking for. So Floris' earlier question, you've seen some sort of lifestyle type assets. Those are, as Connor mentioned, really blending into a lot of the other categories. So it is a bit of a hybrid, depending on whether there's a grocery component and what type of shop space you have.
Ross Cooper: So theres clearly capital that's chasing those assets, we're not really focused on on commodity power today that doesn't have the growth profile that we're looking for.
Ross Cooper: So far she's earlier question, you've seen some some sort of lifestyle type assets.
Ross Cooper: Those are as Cotter mentioned really lending into a lot of the other categories. So it is a bit of a hybrid depending on whether there's a grocery component what type of shop space you have so the the pricing levels, there and the cap rates really are range pretty significantly where we see opportunity for us again, I'll reference to stonebridge asset that we.
Ross Cooper: So the pricing levels there and the cap rates really range pretty significantly. Where we see opportunity for us, again, I'll reference the Stonebridge asset that we acquired last year. Some of the larger check sizes really eliminate a significant amount of the bidder pool.
Ross Cooper: Wired last year some of the larger check sizes really eliminates a significant amount of the bidder pool, we can utilize our platform to be a bit more aggressive on those types of assets, but still maintain yields that are attractive to us and the CAGR on the deal that the growth rate is really critical to us.
Ross Cooper: We can utilize our platform to be a bit more aggressive on those types of assets but still maintain yields that are attracted to us. And the CAGR on the deal, the growth rate is really critical to us. That's not simply just the going in cap rate, but where can we actually utilize our team to move that cash flow and increase it? So that's something that we're very focused on. If we don't believe that we can do that, it doesn't really matter what the going in cap rate is; we're not going to acquire it.
Ross Cooper: Not simply just that the going in cap rate, but where can we actually utilize our team to move that cash flow and increase it and so that's something that we're very focused on it. We don't believe that we can do that it doesn't really matter what the going in cap rate is we're not going to acquire and so.
Ross Cooper: As I mentioned in the remarks, a structured investment program is one that we continue to field a lot of questions conversations interest level I think there's going to be a bit more activity, there, where we can participate and assets that perhaps have a broken capital stack, but not broken real estate. They like those opportunities and we think theres going to be more of it so on a blend.
Ross Cooper: So, as I mentioned in my remarks, the Structured Investment Program is one that we continue to field a lot of questions, conversations, and levels of interest. I think there's going to be a bit more activity there where we can participate in assets that perhaps have a broken capital stack but not broken real estate. We like those opportunities, and we think there's going to be more of them. So on a blend, we're still confident that we're going to be able to put out capital at accretive rates, even if the core acquisition opportunities remain pretty tight.
Ross Cooper: We're still confident that we're going to be able to put out capital at accretive rates, even if the core acquisition opportunities remain.
Ross Cooper: Pretty tight.
Speaker Change: Thank you.
Craig Allen Mailman: The next question comes from Craig Mailman of Citi.
Ross Cooper: The next question comes from Craig Mailman of Citi.
Craig Allen Mailman: Please go ahead.
Conor C. Flynn: Hey, good morning. I just want to go back to kind of the small shop commentary, maybe ask a quick two parter here, but you clearly have some good commentary around the progress on the RPT assets. I'm just kind of curious if, you know, you mentioned some grocery anchors coming on and maybe timing-wise it's helping, but, you know, how much is just your kind of probably broader tenant relationship an asset there versus just the overall kind of pace of the market?
Craig Allen Mailman: Hey, Good morning, just wanted to go back to kind of the small shop commentary maybe.
Conor C. Flynn: Ask a quick two parter here, but.
Conor C. Flynn: You clearly have some good commentary around the progress at at TRP T assets I'm, just kind of curious if you'd mentioned some some grocery anchors coming on and maybe timing wise is helping but you know how much is just your kind of probably broader tenant relationship.
Conor C. Flynn: An asset there versus just the overall kind of pace of the market.
Conor C. Flynn: And also just in general kind of what small shop has there been any change in kind of mix of activity among our small shop tenants that are looking to take space.
Conor C. Flynn: Yeah, no, great question. So with obviously the broader market is doing quite well, but for us specifically, we've launched a variety of programs to really activate Our small shop effort and to drive demand and drive demand into our portfolio, we've launched a national account management program that's really piloting and targeting those fast expanding retailers, F&B operators that are looking to hit open air and we make, You know, regular stops and visits with those retail tenants, showcasing the opportunities within the portfolio, really have a concerted effort to try to grow market share with those individual retailers.
Conor C. Flynn: Yeah, I know.
Speaker Change: Yeah, Great question, so with the obviously the broader market it is doing quite well, but for US specifically, we've launched a variety of programs to really activate.
Conor C. Flynn: Our small shop effort and to drive demand and drive demand into our portfolio. We've launched a national account management program, that's really piloting and targeting those.
Conor C. Flynn: Fast expanding retailers F&B operators that are looking to hit open air and we make yeah.
Conor C. Flynn: Their staffs and visits with the with those retail tenants showcasing the opportunities within the portfolio and really have a concerted effort to try to grow market share.
Conor C. Flynn: With those individual retailers, we sit with franchise ores are we do seminars with them to help introduce kimco.
Conor C. Flynn: We sit with franchisors, we do seminars with them to help introduce Kimco to the franchisees within that concept, so they understand what they can do and what they get when partnering with Kimco and all the services that we can provide. As a best-in-class landlord operator and partner to them, we develop form leases to help make the experiences as seamless as possible when engaging with Kimco, so the operators themselves can really focus on developing and delivering the business.
Conor C. Flynn: To the the franchisees within that concept so they understand what they are what they can deal what they get when that one partnering with kimco on all of the services that we can provide as a as a best in class a landlord operator and partner to them. We developed form leases you know to help make our the experience is seamless.
Conor C. Flynn: As possible when engaging with kimco. So then that the operator themselves can really focus on developing and delivering the business and.
Conor C. Flynn: I think what we saw through Covid.
Conor C. Flynn: The interview, where the landlord is almost as important as the interview its tenant, especially when the market is constantly changing do you need to make the critical investments into the site.
Conor C. Flynn: And I think what we saw through COVID is the interview of the landlord is almost as important as the interview of the tenant, especially when the market's constantly changing. You need to make the critical investments into the site to make sure you're building the best mousetrap, evolving with the local community, and providing those essential services to allow the small shop operators to survive and thrive.
Conor C. Flynn: To make sure you're building the best Mousetrap.
Conor C. Flynn: I'll begin with the local community in providing these essential services to allow the small shop operators to survive and thrive and I think that's been acknowledged and represented and some of the activity that we see as well in terms of users. You know you you continue to see growth in the F&B I've mentioned carbon others earlier.
Conor C. Flynn: And I think that's being acknowledged and represented in some of the activity that we see as well. In terms of uses, you continue to see growth in F&B. I mentioned Cava and others earlier in the call.
Conor C. Flynn: In the call you're also seeing a continued growth in dollar store concept study. So it was one that was really on a growth path, where once they they're necessary small shop, but they are taking you know in combining some spaces, creating new opportunities there.
Conor C. Flynn: So, but holistically, we're seeing in personal care services. So yeah within the individual retail verticals is pretty pretty broad reaching.
Conor C. Flynn: You're also seeing a continued growth in dollar store concepts. So it was one that was really on a growth path where I wouldn't say they're necessarily small shops, but they are taking, you know, in combining some spaces, creating new opportunities there. So, but, holistically, we're seeing in personal care services. So, you know, within the individual retail verticals, it's pretty, pretty broad reaching. The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead. Hi, good morning, everyone.
Caitlin Burrows: The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.
Conor C. Flynn: The next question comes from Caitlin Burrows of Goldman Sachs.
Caitlin Burrows: Please go ahead.
Caitlin Burrows: Hi, Good morning, everyone Occupancies on the rising same store sign up and start to smell pipeline is still pretty wide, but I guess looking forward. It looks like at least 4 million square feet of space in the first quarter, but that's down from 123 and 122.
Caitlin Burrows: Having a larger portfolio. So wondering if you can talk about what's driving that leasing volumes and lower realized so it could be for a number of reasons.
Conor C. Flynn: Yeah, I mean, right now, our occupancy is also at 96%; our all-time high is 96.4. So you're obviously looking at, you know, the opportunity set does change as well with that, as relates to the volume, it's still pretty much in line with prior years. And it's also Q1.
Caitlin Burrows: Yeah, I mean right now it. It's obviously are our occupancy is also at 96% of our all time high is 96, four so you're you're obviously looking at the opportunity set does change as well with that as it reads as it relates to the volume it's still pretty much in line with prior years and it's also in Q1.
Conor C. Flynn: And timing and timing of deal execution can vary throughout the cycle a quarter to quarter and I wouldn't say, there's any slow down and and the deal velocity nor the interest in space, we're seeing actually interest in space and in some of our longer term vacancies now, which is a which is really interesting to see.
Conor C. Flynn: And, you know, timing of deal execution can vary, you know, throughout the cycle, quarter to quarter. And I wouldn't say there's any slowdown in the deal velocity, nor the interest in space. We're seeing interest in space. Some are longer-term vacancies now, which is really interesting to see. And the continued conversation that we have with the retailers about where does the next set of inventory come from.
Conor C. Flynn: And it continued conversation that we have with the retailers about.
Conor C. Flynn: Where does the next set of inventory come from they're continuing to try to hit there and find their opportunities to hit their their market share targets their store opening targets and we're not just looking at current year, but obviously two years out on the rollover schedule, So where we're very encouraged by what we've been seeing in them.
Conor C. Flynn: They're continuing to try to hit here and find opportunities to hit their market share targets, their store opening targets. And we're not just looking at the current year but, obviously, two years out on the rollover schedule. So we're very encouraged by what we've been seeing in the markets, and it's pretty far-reaching in terms of geography. It's really not isolated to any one particular market. Obviously, Florida in the southeast has seen its fair share of growth over the last several years.
Conor C. Flynn: Markets and its and its pretty far reaching in terms of geography, it's really not isolated to any one particular market, obviously, Florida and the southeast has seen it seen its fair share of growth over the last several years that continues but.
Conor C. Flynn: Same really across the board activity, which have which is very encouraging.
Caitlin Burrows: Okay, thanks.
Speaker Change: Okay. Thanks.
Caitlin Burrows: Our next question comes from Greg Mcginniss of Deutsche Bank. Please go ahead.
Speaker Change: Hey, good morning.
Caitlin Burrows:
Glenn Gary Cohen: Sorry, a little thrown by the bank there. Looking at the guidance update, it's just under two cents from interest income, non-GAAP income, and around a penny and a half from higher same-story NOI growth, at least based on our math. What are the offsetting factors on the two-cent guidance range? Is that just earlier dispositions than initial plan, or any color would be appreciated there? Yeah.
Speaker Change: Sorry, little thrown by the banks there.
Glenn Gary Cohen: Looking at the guide recognizing too.
Glenn Gary Cohen: Looking at the guidance update it's just under two cents from interest income non-GAAP income and around a penny and a half from higher same store NOI growth at least based on our math living offsetting factors on the Tucson guidance range that just earlier dispositions than initial plan and any color would be.
Glenn Gary Cohen: Created there.
Glenn Gary Cohen: Yeah, I mean, again, it was a very strong quarter. There is, as I mentioned, just under a penny of what I'll call non-requiring or one-time things that are in there, but the bounce of the year is shaping up very well. So, you know, we increased the guidance by the two cents that we saw so far and feel good that we're, you know, in good shape to reach the upper end of that range.
Speaker Change: Yeah, I mean again, a very strong quarter. There's there is as I mentioned, you know just under a penny of.
Glenn Gary Cohen: Nonrecurring or one time things that are in there, but the balance of the year is shaping up very well. So you know we increased the.
Glenn Gary Cohen: The guidance by the to sense that we saw so far and feel good that we're.
Glenn Gary Cohen: In good shape to reach towards the upper end of that range.
Ross Cooper: Thanks. And then on the 10 RPT dispositions, how important was providing seller mortgage financing on those transactions to get them done at the eight and a half cap rate? If the buyer had to go elsewhere for financing, where do you think those cap rates might have trended?
Speaker Change: Okay. Thanks, and then.
Ross Cooper: On the 10 RPT dispositions, how important was providing stellar mortgage financing on those transactions to getting them done at the eight and a half cap rate I mean, if the buyer had to go elsewhere for financing where do you think those cap rates might have trended.
Ross Cooper: Yeah, I mean, I really don't think that it impacted the pricing or the execution at all. To be completely transparent, that was a structure that we were excited about and pushing onto the buyer because we really wanted to retain a slice of those assets at yields that are really attractive for us. So as it relates to the transaction itself, at the risk of repeating a little bit of what Connor said, we really tried to telegraph early on what our strategy was for the company and for the acquisition.
Ross Cooper: Yeah, I mean, I really don't think that
Speaker Change: Yeah, I mean, I really don't think that it impacted the pricing or the execution at all to be completely transparent that was a structure that that we were excited about and pushing onto the buyer because we really wanted to retain a slice of those assets at yields that are really attractive for us. So you know as it relates to the to the transaction itself.
Ross Cooper: <unk> at the at the risk of repeating a little bit of a Conor said you know we really tried to telegraph early on what our strategy was on the company and on the acquisition and we were buying into a great portfolio at a mid eight cap, where we acknowledged that there was a tail in the portfolio and we're really excited that we're able to sell that tail.
Ross Cooper: And we were buying into a great portfolio at a mid-eight cap where we acknowledged that there was a tail in the portfolio. And we're really excited that we were able to sell that tail at the same cap rate that we bought the whole company. So with what we're left with, Miami, Boston, Atlanta, Austin, Denver, Nashville, just to name a few, at the same blended cap rate that we went into the company and the acquisition with.
Ross Cooper: Cap rate then we bought the whole company so with what we're left with Miami, Boston, Atlanta, Austin Denver.
Ross Cooper: Nashville, just to name a few I think at the same blended cap rate. Then we went into the company I mean acquisition. So we feel really good about that we feel good about the execution on that deal and we think that it was a win win for us and the buyer on those on those 10 assets.
Ross Cooper: So we feel really good about that. We feel good about the execution of that deal. And we think that it was a win-win for us and the buyer on those ten accounts. All right. Thanks, Ross. The next question comes from Mike Mueller of J.P. Morgan. Please go ahead.
Michael William Mueller: Alright, Thanks Ross.
Michael William Mueller: Got it.
Michael William Mueller: The next question comes from Mike Mueller of J.P. Morgan. Please go ahead.
Ross Cooper: The next question comes from Mike Mueller of J P. Morgan.
Michael William Mueller: Please go ahead.
Michael William Mueller: Yeah, Hi, I guess looking at the full year planned dispositions it looks like another maybe one to 200 billion in those.
Michael William Mueller: I guess the guided to cap rates look to still be in the mid eights, just curious whats, making up that remaining disposition bucket.
Ross Cooper: Sure, you know, we frankly don't have anything specifically identified for that. We've executed, as we talked about on the 10 things that we really wanted to get done, and we got it done quickly. So, on a go-forward basis, our goal is really to improve the quality portfolio and the growth profile. And frankly, it doesn't matter if that's a Kimcoe legacy asset, RPT, Wine Garden, JV, or wholly owned. You know, our job is to identify those assets that, you know, have some movement in the direction that is not in line with where we're trying to go with the portfolio and remove them before they do so. So, these assets are very dynamic and changing at all times.
Michael William Mueller: Sure Yeah, we frankly don't have anything specifically identified or that we've executed as we talked about on the Tam that we really wanted to get done and we got done with them quickly. So on a go forward basis. Our goal is really to improve the quality portfolio in the cloud and the growth profile and frankly.
Ross Cooper: It doesn't matter if that's a kimco legacy asset RPT Weingarten JV wholly owned now our job is to identify those assets that you now have some movement in the in the direction that is not in line with where were trying to go with the portfolio and remove them before they do so.
Ross Cooper: So these assets are very dynamic and changing at all times. The vast majority of our portfolio continues to improve and we're able to add value and then occasionally there's an asset here or there that that doesn't fit that profile that we look to prune. So are we really are back to just the normal course pruning of the portfolio again, regardless of when we bought it.
Ross Cooper: The vast majority of our portfolio continues to improve, and we're able to add value, and then occasionally, there's an asset here or there that doesn't fit that profile that we look to prune. So, we really are back to just the normal course pruning of the portfolio, again, regardless of when we bought it or where it came from. And we'll selectively identify those, but we do expect that we would be on the lower end of the range.
Ross Cooper: Where it came from and we'll selectively identify those but we do expect that we would be on the lower end of the range and anything that we do look to sell going forward, while the cap rate range on the overall blend remain the same in our guide we wouldn't anticipate selling anything that is not at the low end or below that Angela.
Ross Cooper: Anything that we do look to sell going forward, while the cap rate range on the overall blend remains the same in our guide, we wouldn't anticipate selling anything that is not at the low end or below that end of the range. There may be a couple of joint venture assets that end up going to the market, and those would be at much tighter cap rates than that range. So, we kept the range intact just because we don't know what exactly that portfolio looks like, but we do know that going forward, anything that we sell would be below that range. Got it. Okay. Our next question comes from Anthony Powell.
Anthony Franklin Powell: The range there may be a couple of joint venture assets that and that kind of go into the market and those would be at much tighter cap rates in that range. So we kept the range in taxes, because we don't know what exactly that portfolio looks like but we do know that going forward anything that we sell would be below that range.
Anthony Franklin Powell: Going forward.
Anthony Franklin Powell: Got it okay.
Anthony Franklin Powell: Our next question comes from Anthony Powell from Barclays. Please go ahead. Good morning.
Ross Cooper: Our next question comes from Anthony Powell from Barclays.
Anthony Franklin Powell: Please go ahead good morning.
Anthony Franklin Powell: Hi, Good morning, you mentioned that you saw lower I guess landlord expenses than expected and we noticed that you may be talk about what drove that was lower and your opportunity to continue to control expenses going forward.
Conor C. Flynn: Yeah, I mean, our team did an exceptional job just really looking at every expense line item and finding opportunities to either do it more efficiently, find ways to save, and just make adjustments in terms of our operating strategy. And so I have to commend the team for really digging deep line by line and really finding a better way to manage the business and manage the sites locally. As a result of that, it helped drive our expenses down for the quarter.
Anthony Franklin Powell: Yeah. I mean, we are our team has done an exceptional job just really looking at every expense line item and finding opportunities to either do it more efficiently find ways to save and just make adjustments in terms of our operating strategy and so I have to commend the team and just really digging deep line by line.
Conor C. Flynn: And really finding a better way to manage the business and manage the sites locally as a result of that that helped drive our expenses down for the quarter are there is some seasonality there too just in terms of timing of when things actually hitting our expense and.
Conor C. Flynn: In our book, but in general that was a that was sort of the broad effort that occurred.
Conor C. Flynn: There is some seasonality there too, just in terms of timing of when things actually hit in our [inaudible] in our book, but in general, that was sort of the broad effort that occurred. Okay, thank you. The next question comes from
Speaker Change: Okay. Thank you.
Wesley Keith Golladay: The next question comes from Wes Golladay of Baird. Please go ahead. Hey, good morning, everyone. I'm looking at the clock.
Conor C. Flynn: The next question comes from Wes Golladay of Baird. Please go ahead.
Wesley Keith Golladay: Hey, good morning, everyone I'm just looking at the presentation that you have about 6500 multifamily units entitled.
Wesley Keith Golladay: Interest in starting developments this year to deliver it to the low supply market a few years from now.
Conor C. Flynn: It's a good question, Wes. I mean, we've always looked at optionality as being a benefit to us in the entitlement program. We do believe that, you know, future value creation is embedded in our portfolio, and unlocking that is a good way to sort of set up different levers for growth when supply and demand and the cost of capital are in your favor. It's hard to see sort of putting a shovel in the ground today making a ton of sense, you know, where our cost of capital is.
Wesley Keith Golladay: It's a good question West I mean, we've always looked at Optionality as being a benefit to us on the entitlement program. We do believe that you know future value creation is embedded in our portfolio and unlocking that is a good way to sort of set up a different levers for growth when supply and demand and cost of capital is and your fee.
Conor C. Flynn: Labor, it's hard to see sort of putting a shovel in the ground today and making a ton of sense, you know where where our cost of capital is so what we've elected to do as you've seen in the shop is contribute entitled land into a joint venture as our capital and then put in preferred equity that has a higher yielding returns.
Conor C. Flynn: So what we've elected to do, as you've seen in this video, is contribute entitled land to a joint venture as our capital and then put in preferred equity that has a higher yielding return on it. That being said, you know, we do like the ground lease approach, where we have no capital outlay, and a multifamily developer can come in and develop the entitlements, and we retain the ownership of the fee position. So we have a number of different ways to do it without having a significant amount of capital going out that's not returning anything on day one.
Conor C. Flynn: On it that being said you know we do like the ground leased approach or we have no capital outlay and a multifamily developer can come in and develop the entitlements and we retain the ownership of the fee position. So we have a number of different ways to do it without having a significant amount of capital going out that's not returning anything they want and we will continue to take that approach.
Conor C. Flynn: And we'll continue to take that approach, being very selective and understanding that. We've also monetized entitlements where we don't see fit in terms of developing them ourselves, like office entitlements. So there's a number of different ways we can look at it, and every single asset is its own analysis. And so we try and take it one by one and identify what's the best way forward for that asset.
Conor C. Flynn: Being very selective and an understanding that we've also monetize entitlements, where we don't see fit in terms of developing it ourselves like office entitlement. So theres a number of different ways. We can we can look at it in every single asset is its own analysis and so we try and take it one by one and identify what's the best way forward for that asset.
Speaker Change: Thanks for the time.
Linda Tsai: The next question comes from Linda Tsai of Jeffrey. Please go ahead.
Conor C. Flynn: The next question comes from Linda Tsai of Jefferies. Please go ahead.
Conor C. Flynn: Yes, hi. As you look at the SNO pipeline, you have good lease up opportunity ahead still. Would you expect the SNO pipeline to be higher or lower by year end versus now?
Linda Tsai: Yes, Hi, as you look at the S. N O pipeline you have good lease up opportunity you had still did you expect the snow pipeline to be higher or lower by year end versus now.
Conor C. Flynn: Yeah, good question. Obviously, this quarter, we did compress the 20 basis points, we also absorb the RPT portfolio, and we compressed that pipeline actually significantly. As I mentioned earlier in the call, a couple big deals started to cash flow in in Q1, which was driving that benefit there. That said, we do continue to see upside on the continued lease up. I mentioned earlier that we're seeing opportunities on some vacancies that have been vacant a little bit longer than others now, and as well as sort of the Tier 1 inventory that we have that continues to get absorbed.
Linda Tsai: Yeah. Good question, obviously this quarter, we did compressed 20 basis points. We also absorbed the RPT portfolio, we compressed that pipeline actually significantly as I mentioned earlier in the call a couple of big deals I'm starting to cash flow in in Q1, which was.
Conor C. Flynn: Driving that benefit there.
Conor C. Flynn: That said, we do continue to see upside on R&D continued lease up I mentioned earlier that we're seeing opportunities on some vacancies that had been taken a little bit longer than others now in and as well as sort of the.
Conor C. Flynn: Turning to the tier one inventory that we have that continues to get absorbed so when you roll it all together and I would I would anticipate that our pipeline will remain slightly elevated as a result of the continued lease up activity, but when you look at what we're contributing in terms of new cash flows.
Conor C. Flynn: So when you roll it all together, and I would anticipate that our snow pipeline will remain slightly elevated as a result of the continued lease-up activity, but when you look at what we're contributing in terms of new cash flows, we obviously had about just over $2 million contributed in Q1 from new openings, about 150-plus leases that commenced from there. They'll contribute about $15 million in total for the balance of the year. And then, in addition to that, we're targeting around $25-30 million to be donors in totality for this entire year.
Conor C. Flynn: We obviously had about just over 2 million contributed in Q1 from new openings about 150, plus leases that commenced from their adult contribute about 15 billion in total for the balance of the year and then in addition to that we're targeting around you know $25 million to $30 million would be contributors for the balance for it for.
Conor C. Flynn: In totality for this entire year. So we're starting to see those benefits as you saw with our Q1 results that it is contributing to the bottom line.
Conor C. Flynn: So we're starting to see those benefits, as you saw with our Q1 results, that it is contributing to the bottom line. But we continue to see opportunities on the lease-up side, so that's why I think it probably will remain a little bit elevated for the short term. Linda, a lot of it is event-driven as well. So when you get a number of spaces back at once, and then you have a lot of leasing activities to backfill those, you can elevate the snow pipeline.
Conor C. Flynn: We continue to see opportunities in the lease up side. So that's why I think it probably will remain a little bit elevated for the short term here and a lot of it is event driven as well. So when you get a number of spaces back at once and then you have a lot of leasing activity to backfill. Those you can elevate the snow pipeline, but if you don't have any.
Conor C. Flynn: But if you don't have an event that gives you back a lot of space that you can release quickly, it should compress. So we, you know, with the Joanne bankruptcy coming out of bankruptcy and emerging with no leases rejected, no boxes coming back, sort of showcasing that, and even they said it's about market share, and they would want to give any of the spaces back because they would lose market share.
Conor C. Flynn: That gives you back a lot of space that you can re leased quickly it should compress. So we you know with the Joanne bankruptcy coming out of bankruptcy and emerging with no leases rejected no boxes coming back sort of showcasing that even they said, it's about market share and they wouldn't want to give any of those spaces back because.
Conor C. Flynn: It so showcases the supply and demand dynamic that we're experiencing today, where with no new development going on in our sector and demand being so robust, the existing leases are worth more than they have been in a very long time. And so when you see that there's unlikely going to be a slew of boxes coming back at the same time, that would then cause
Conor C. Flynn: They would lose market share its it showcases the supply and demand dynamic that we're experiencing today, where with no new development going on in our sector and demand being so robust the existing leases are worth more than they have been in a very long time and so when you see that there is unlikely.
Conor C. Flynn: Going to be a slew of boxes coming back at the same time that would then cause a spike in the snow pipeline, it's going to be more blocking and tackling filling up the small shops that we have left to go and filling up the remaining vacancies on the anchor side, which we have good activity on.
unknown: , , , , ,
unknown: Thanks for that color. And then, I think you mentioned... Our next question-
Speaker Change: Thanks for that color and then I think you mentioned.
Ronald Kamdem: Our next question comes from Ronald Kamden of Morgan Stanley.
unknown: Our next question comes from Ronald Camden of Morgan Stanley.
Ronald Kamdem: Please go ahead.
Ronald Kamdem: Great just a quick two parter for you guys. So on the same store NOI guide raise them is it fair to say that it's basically earlier commencement that that drove the upside.
Ross Cooper: So, on the same-story-and-wide guide raised, is it fair to say that it's basically earlier commencements that drove the upside, and what is driving sort of the expected deceleration in the rest of the year is part one? And then part two on the acquisition guidance, just how much of that is identified already versus speculative? Sure, so as it looks to the rest of the year, you know, we're still comping against some of the bed baths in the second quarter, so that's going to have some impact as we go there. The guide increase really is, We have further commencements that came online quicker, as Dave alluded to. And again, the credit loss has been performing very well so far. So again, we're more comfortable with the lower end of the range. So that's really what's built into the guide.
Ross Cooper: And what is what is driving sort of the expected deceleration in the rest of the year. It's part one and then part two on the acquisition guidance.
Ross Cooper: How much of that is identified already versus speculative.
Ross Cooper: Thanks.
Ross Cooper: Sure so as it looks to the rest of the year you know, we're still comping against some of the bed Bath in the second quarter. So that's going to have some impact.
Ross Cooper: But as we go there you know the credit the guide increase really is.
Ross Cooper: Further commencement that came online quicker.
Ross Cooper: Dave alluded to and again the.
Ross Cooper: The credit loss has been performing very well so far so again, we are more comfortable towards the lower end of the range. So that that's really what's built into the guide.
Ross Cooper: And related to your acquisition question, we're always hesitant to talk about deals before they're really firmed up and closed. But what I can tell you is on the core acquisitions, we do not have anything under contract today. We are pursuing a few opportunities that we hope will move ahead, but stay tuned on that. And as it relates to structured investments, by nature, those deals are really driven by other parties, whether it be buyers, sellers, owners, or senior lenders.
Speaker Change: And related to your acquisition question, Yeah, we're always hesitant to talk about deals before there, they're really firmed up and and close but what I can tell you is on the core acquisitions, we do not have anything under contract today we.
Ross Cooper: We are pursuing a few opportunities that we hope will move ahead, but stay.
Ross Cooper: Stay tuned on that and then as it relates to structured investments by nature. Those deals are are really driven by other parties, whether it would be buyers sellers owners senior lenders. So those deals are always a little bit fluid until the very end of the process, but as I mentioned earlier, we're seeing a lot of demand for our <unk>.
Ross Cooper: So those deals are always a little bit fluid until the very end of the process, but as I mentioned earlier, we're seeing a lot of demand for our capital and having some really dynamic conversations with owners and buyers that are looking for us to help secure a piece of the capital stack in those deals. We're pretty confident that there's going to be some more activity there this year. The next question comes from Tayo Okusanya of Deutsche Bank. Please go ahead. Yes, good morning, everyone. I wanted to go back to Wes's question. But rather than talk about multi-tasking,
Unknown Attendee: Capital and having some some really dynamic conversations with owners and buyers that are looking for us to help them.
Unknown Attendee: Secure a piece of the capital stack in those deals so we were.
Ross Cooper: Pretty confident that there's going to be some more activity there as the year progresses.
Unknown Attendee: The next question comes from Tayo Okusamya of Deutsche Bank. Please go ahead.
Ross Cooper: The next question comes from Tayo Okusanya of Deutsche Bank.
Unknown Attendee: Please go ahead.
Unknown Attendee: Hi, Yes. Good morning, everyone I wanted to go back to work, there's a question, but rather than talk about multifamily talk a little bit more about just the retail redevelopment.
Unknown Attendee: You do have in your Sop, a fairly expansive list of potential new Readouts, you could start and just kind of curious about union potentially starting those up just kind of given the overall retail development pipeline is probably not as large as some of your peers, but everyone's getting really good yields on that.
Conor C. Flynn: Yeah, I mean, we always look at them as opportunistic in nature; those are entitlements that we have in our back pocket that we can pull out when the timing's right. And honestly, when we look at all of our fund opportunities and determine where the best use of capital is at any given point in time. So we look at it holistically, and that's how we've always approached the multifamily entitlement program. We selectively activate them. As you know, we have a couple underway right now.
Unknown Attendee: Yeah, I mean, we always like it is opportunistic in nature those are entitled minutes that we have in our in our back pocket that we can pull off the shelf one when the timing is right and and honestly when we look at all of our use of fun opportunities and determining where the best use of capital is at any given point in time.
Conor C. Flynn: So we look at it Holistically and that's how we've always approached the multifamily entitlement program, we selectively activate them as you know we have we have a couple underway right now, but we're just gonna be very prudent on when we activate the next tranche, we're seeing great returns right now on retail repositioning retail redevelopments that.
Conor C. Flynn: But we're just gonna be very prudent on when we activate the next tranche. We're seeing great returns right now on retail repositioning and retail redevelopment. That's the core; you're seeing double-digit yields on those investments. And then, obviously, leasing, when you look at the elevated activity on the leasing side, it's the best use of our capital. And if we can continue to do that and drive high returns and yields for the investor base, we will continue to do that all day long. So for us, it's just another tool in the toolkit. And we'll activate it when the timing's appropriate in the market cycle.
Conor C. Flynn: The core you're seeing double digit yields on those investments and then obviously leasing when you look at the elevated activity on the leasing side. Its the best use of our capital and if we can continue to do that and drive high returns and yields for the Investor base. We continue to do that all day long so.
Conor C. Flynn: It's just another tool in the toolkit and and will activate it when when timing is appropriate in the market cycle makes sense.
Paulina Alejandra Rojas: The next question comes from Paulina Rojas of Green Street.
Conor C. Flynn: The next question comes from Paulino Rojas of Green Street. Please go ahead.
Paulina Alejandra Rojas: Good morning.
Ross Cooper: You talked about tight pricing in the transaction market for certain assets, and I'm thinking more about geography. Are there any markets or regions standing out for being less crowded but that, in your opinion, could offer some opportunities? And I'm basically thinking that with regions such as the southeast being so hard, I wonder if that is opening opportunities somewhere else, even in markets that traditionally have not been sought after by most investors, even the Midwest, for example.
Paulina Alejandra Rojas: You talked about tight pricing in the transaction market for certain assets.
Ross Cooper: And I'm thinking more about geography are there any markets or regions standing out for being less crowded, but that in your opinion could offer and some opportunities.
Ross Cooper: And I'm basically thinking that.
Ross Cooper: And we we just secondly, housekeeping so call. It I I wonder if that is opening opportunity somewhere else even in markets that traditionally have not been sought after.
Ross Cooper: By most investors even the Midwest for example.
Ross Cooper: Yeah, it's a good question, and we always do look at new markets that might make sense for us. As you know, San Antonio is a relatively new market for us that we continue to lean into. Nashville is a market that we really weren't in before, but we acquired a few assets via the RPT transaction, so we're open-minded as it relates to new markets. Even in the Midwest, where you've seen a lot of institutional capital sort of outflowing, you are seeing more demand in some of those markets and pricing that is getting tighter than where it's been compared to some other markets.
Speaker Change: Yeah. It's a good question and we always do look at new markets that might make sense for us as you know San Antonio is a relatively new market for us that we continue to lean into.
Ross Cooper: National is a market that we really weren't in before that we have acquired a few assets via the the RPT transaction. So we're open minded as it relates to new markets, even in the Midwest, which over the last decade, you've seen a lot of institutional capital and sort of out flowing.
Ross Cooper: You are seeing more demand in some of those markets and pricing that is getting tighter and where it's been compared to some other markets. So we really have the benefit of our geographic diversity that we can look for opportunities really anywhere in the country, where we have boots on the ground and we have conviction. So we're keeping an open mind for those markets.
Ross Cooper: So we really have the benefit of our geographic diversity, that we can look for opportunities really anywhere in the country where we have boots on the ground, and we have conviction. So we're keeping an open mind to those markets. We have our structured investment program, which also allows us to be a little bit more creative and opportunistic as opposed to just core acquisitions. So we'll continue to keep our eyes open. The next question comes from Jeff Spector of Bank of America. Please go ahead. Great, thank you. Maybe we should turn back to the transaction market, Ross.
Jeffrey Alan Spector: We have our structure and investment program, which also allows us to be a little bit more creative and opportunistic as opposed to just core acquisition. So what will continue to keep our eyes open.
Jeffrey Alan Spector: The next question comes from Jeff Spector of Bank of America. Please go ahead.
Ross Cooper: The next question comes from Jeff Spector of Bank of America. Please.
Jeffrey Alan Spector: Please go ahead.
Jeffrey Alan Spector: Great. Thank you, maybe let's turn back to the transaction market Ross you said at the top of the call.
Jeffrey Alan Spector: Just given the you know what's happening with the fed.
Jeffrey Alan Spector: Few on rates Theres, a dampening in the transaction market has anything changed let's say in the last couple of weeks and and maybe you could touch on the structured investment.
Jeffrey Alan Spector: Pipeline.
Ross Cooper: Yeah, I don't know that I would have identified the last few weeks as just, you know, any different from the sort of volatility that we've seen the first four months of the year. You know, there was a lot of hope going into the year that there would be some more stability. And really, you know, we can live and there can be a market that's efficient in a higher interest rate environment, but there just needs to be some stability there.
Jeffrey Alan Spector: Yeah, I don't know that I would identify the last few weeks I, just you know any different than sort of the volatility that we've seen at.
Ross Cooper: The first four months of the year you know there was a lot of hope going into the year that there would be some more stability and really you know we can live and there can be a market that suspicion in a higher interest rate environment, but there just needs to be some stability. There so with the uncertainty it just makes it very difficult for any.
Ross Cooper: So with the uncertainty, it just makes it very difficult for any investor that is looking for financing because there is a lag time between when you shake hands on a deal and when you actually go and lock in the rate or close on that loan. And the buyer and the seller expectations often change accordingly. So the hope is that there's a little bit more stability in that, and then on a going forward basis, we can see the transactions, you know, start to increase on the back.
Ross Cooper: Investor that is looking for financing.
Ross Cooper: Because there is a lag time between when you shake hands on a deal and when you actually go in and lock rate or close on that loan.
Ross Cooper: The buyer and the seller expectations oftentimes change accordingly, so the hope is that there is a little bit more stability to that and then on a go forward basis. We can see the transactions you know start to increase over the back half of the year and I think that that will happen, but there's still just a lot of unknowns.
Ross Cooper: A moment.
Alexander David Goldfarb: And our next question comes from Alexander Goldfarb.
Ross Cooper: And our next question comes from Alexander Goldfarb.
Alexander David Goldfarb: Piper Sandler.
Alexander David Goldfarb: Please go ahead hey.
Conor C. Flynn: Hey, thank you. Just a quick follow up on the heels of Linda Tsai's question. Do you think that we're being lulled into complacency by the strength of the retail market? The fact that Joann's basically had no downtime, and Bed Bath was almost a non-issue. Just curious if you think that we're being lulled into complacency, or if for the next few years, you see this low credit, you know, high demand environment enduring. It's certainly quite a contrast to what, you know, we're used to pre-pandemic. A lot of them
Alexander David Goldfarb: Hey, Thank you just a quick follow up on the heels of Linda size question.
Conor C. Flynn: Do you think that were being rolled into complacency on the strength of the retail market. The fact that Joanne basically had no downtime bed Bath was almost a non issue. Just curious if you think that were being loaded into complacency or for the next few years you see this low credit you know high demand.
Conor C. Flynn: [noise] environment enduring it's certainly quite a contrast to what we're used to you know pre pandemic.
Conor C. Flynn: A lot of it, Alex, I think ties back to supply and demand. I mean, if you look at the lack of new supply for the last decade plus, and then the evolution of the omnichannel approach by retailers and how important the last mile is with their store located close to where people live, work, and play, I think that model has won out.
Speaker Change: A lot of it Alex I think ties back to supply and demand I mean, if you look at the lack of new supply for the last decade, plus and then the evolution of the omni channel approach by retailers and how important the last mile is with their store located close to where people live work and play I think that model has one out you've seen an exit of.
Conor C. Flynn: A lot of pure play e-commerce players, especially in the grocery business and you've seen a lot of the pure play E. Commerce players the larger ones lean into their stores now that they have to utilize them as you know distribution fulfillment and an in store experience. So I think that combination is really what is <unk>.
Conor C. Flynn: You've seen an exit of a lot of pure play e-commerce players, especially in the grocery business. And you've seen a lot of the pure play e-commerce players, the larger ones, lean into their stores now that they have to utilize them, as you know, for distribution, fulfillment, and store experience. So I think that combination is really what is leading to a resurgence in the importance of the brick-and-mortar world, and the integration of the e-commerce platform has been a big boost, whereas at one point, it was David versus Goliath, that it was going to be one that was going to win and one that was going to lose, where now it's obviously the combination is the winning model that everybody's following
Conor C. Flynn: Adding to a resurgence of the importance of the brick and mortar world and the integration of the ecommerce platform.
Conor C. Flynn: It's been a big boost whereas at one point. It was it was you know David versus Goliath that it was going to be one was going to win and one was gonna lose where now. It's obviously the combination is the winning model that everybody's following so all those ingredients I think lead to the environment that we're in today loads I think is not the right word I think you know we're in it we're in is.
Conor C. Flynn: All those ingredients, I think, lead to the environment that we're in today. Lulled, I think, is not the right word. I think we're in a situation where higher rates have impacted all of commercial real estate, and so I think when you get through this noise and stabilization period of where rates may settle out, there's going to be, I think, a differentiation in sectors of really who has pricing power, who's able to outgrow interest expense, and I think there's only going to be certain categories that are going to be able to do that, and I think we're in the right one.
Conor C. Flynn: <unk>, where you know higher rates have impacted all of the commercial real estate and so I think when you get through this noise and stabilization period of where rates may settle out there's going to be I think a differentiation in sectors are really who has pricing power who's able to outgrow interest expense and I think there is only going to be certain.
Conor C. Flynn: Categories that are going to be able to do that and I think we're on the right one.
David F. Bujnicki: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bushnicki for any closing remarks.
Conor C. Flynn: This concludes our question and answer session I would like to turn the conference back over to Mr. Bush Nikki for any closing remarks.
David F. Bujnicki: I would like to thank everybody for joining today's call. We look forward to seeing a number of you at the upcoming NARI conference in June. Please enjoy the rest of your week. Thank you.
Bushnicki: Just like to thank everybody for joining today's call. We look bonus thing a number of you at the upcoming NAREIT Conference in June. Please enjoy the rest of your week. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: [music].