Q3 2024 Kimco Realty Corp Earnings Call
Speaker Change: and the
Speaker Change: Hello and welcome to the Kimco Realty 3rd quarter 2024 earnings conference call. All participants will be in listen only mode.
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Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: I would now like to hand the call over to David Bujnicki, Senior Vice President of Investor Relations and Strategy. Please go ahead.
David Bujnicki: Good morning and thank you for joining Kimco's quarterly earnings call.
Speaker Change: The Kimco Management Team are just being on the call today, including Conor Flynn, Kimco CEO, Ross Cooper, President and Chief Investment Officer.
Speaker Change: are CFL, Dave Jamison, Kim Kostchief operating officer, as well as other members of our executive team that are also available to answer questions during the call.
Speaker Change: As a reminder, statements made during the course of this call may be deemed forward-looking and 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 and certainties and other factors.
Speaker Change: Please refer to the company's SEC filings that address such factors.
Speaker Change: During this presentation, Mazra and May make reference to certain non-gap financial measures that we believe help investors better understand Kimco's operating results.
Speaker Change: Reconciliation of these non-gap 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 incur technical difficulties, we'll try to resolve as quickly as possible and if the need arises will post additional information to our IR website. With that, I'll turn the call over to Conor.
Conor Flynn: Good morning and thanks for joining us today. I will begin with an update on the great progress we have made in 2024 and provide an update on our RBT integration which has gone extremely well.
Conor Flynn: Then I'll highlight that they were supposed to apply in demand dynamics for our sector and our company, and conclude with brief insights on some key leasing metrics.
Conor Flynn: Ross will follow with an update on the transaction market in our exciting new acquisition and Glenn will close with our financial metrics and the full year guidance range we again have raised.
Conor Flynn: We believe it is important to call out some of the great progress we made on building on past year's success, both with enhanced internal growth, as well as being a net acquire for the year, which will benefit external growth.
Conor Flynn: We're also proud to highlight another accomplishment this quarter, achieving our goal of securing 12,000 multi-family unit entitlements a year ahead of schedule.
Conor Flynn: These entitlements valued at an estimated 175-325 million offer us significant flexibility, whether we choose to self-develop, contribute to a joint venture, ground lease, or even sell them outright, these entitlements enhance our long-term growth potential.
Conor Flynn: Turning to our RPT acquisition, I want to thank our integration and operating teams for their extraordinary efforts.
Conor Flynn: We continue to exceed expectations with respect to the pace of integration and performance of this portfolio In our head on both operational synergies and ROI projections for the year And we continue to close the gap on the spread between RBT's small shop occupancy and Kim Kozakipincy
Conor Flynn: Specifically.
Conor Flynn: RPT occupancy increased 40 basis points, quarter over quarter.
Conor Flynn: Drumin by a 50-bases point increase in small shop occupancy and a 30-bases point increase in anchor occupancy.
Conor Flynn: Another key attribute providing us with additional confidence in our portfolio platform is the current supply and demand dynamic for high quality retail, which continues to favor Kimco. According to several large national brokers.
Conor Flynn: They can see levels and new shopping center construction remains at historic lows, leaving prospective tenants limited options in obtaining space for high quality locations, particularly in the most sought after markets.
Conor Flynn: To underscore this limited availability, retailers are proactively reaffirming or assigning leases during the bankruptcy process to secure product locations.
Conor Flynn: in 2024, 50 out of our 56 leases with tenants who declared an emerge from bankruptcy for either assumed or acquired by credit worthy tenants.
Conor Flynn: Even more encouraging for our portfolio is that leasing demand continues to be broad-based and diverse.
Conor Flynn: Off-Frites, Grocery, Beauty, Health and Wellness, Fitness, Medical and Services, all continue to compete for space in our centers.
Conor Flynn: All of this affords our team the ability to push economics and enhance our merchandising mix and further increase the value of our best in class portfolio.
Conor Flynn: Turning to our leasing metrics, we are proud to report that our team achieved another milestone this quarter with occupancy up 20 basis points sequentially and 90 basis points year over year to 96.4 percent matching our all-time high achieved in the fourth quarter of 2019.
Conor Flynn: Anchor Oxfancy was up 10 basis points to 98.2% which was a 100 basis points higher year over year. So all shop Oxfancy was up 10 basis points to 91.8% which is also a record high and up 70 basis points year over year.
Conor Flynn: Newlies volume total 119 deals totaling 543,000 square feet for the third quarter.
Conor Flynn: The rent spread for new leases was an impressive 41.9%.
Conor Flynn: and our 12th consecutive quarter of double-digit rent spreads. Positive drivers include a new target lease in Fort Lauderdale, Florida, a new legal grocery conversion in Staten Island, New York, as well as a new Tesla dealership in Miami, Florida.
Conor Flynn: Reynolds and options volume was 332 deals totaling 1.9 million square feet for the quarter. The Reynolds and options spread was 6.8% with renewals increasing by 6.9% and options growing at 6.6%.
Conor Flynn: Combined, third quarter 2024, least volume, was 451 deals totaling 2.4 million square feet with a combined spread of 12.3%.
Conor Flynn: We also added four gross rain-gross to the portfolio this quarter, improving our percentage of annual base rent from gross rain-gross sets to 84%.
Conor Flynn: These results continue to distinguish our solid and unique operating platform supported by a highly engaged and aligned team, which we believe provides meaningful relative differentiation.
Conor Flynn: In closing, we are encouraged by the momentum that our team and platform of built and are excited about where we go from here.
Conor Flynn: and while we have built a business designed to withstand any economic cycle, we looked to benefit from the continued strength of the employment market, healthy consumer spending and the dampening of inflation.
Conor Flynn: We have been executing on our strategic goals to improve organic growth and add a creative external growth when the stars align. We remain disciplined on capital allocation and balance sheet management, giving us the ability to weather any storm and pounce when the opportunity presents itself.
Speaker Change: I want to thank our dedicated colleagues for continuing to raise the bar at Kimco. Ross.
Ross Cooper: Good morning everyone. I hope you have a safe and happy Halloween today.
Ross Cooper: I'm excited to discuss Kim Cohen's recent investment strategy and expectations as we close out the year and look ahead to 2025.
Ross Cooper: In the third quarter, we made a modest level of new investments as we shift at our acquisitions focus back towards own assets, moving away from the highly selective structured investment approach we took in the first half of the year.
Ross Cooper: With today's more favorable cost to capital, we are pivoting back to evaluating own acquisition opportunities, including larger format properties.
Ross Cooper: As we assess the number of opportunities, we will remain very disciplined in our external capital allocation.
Ross Cooper: With respect to our newest acquisition, Waterford Lake Town Center in Orlando captures the essence of why we are excited about these types of large format opportunities.
Ross Cooper: In terms of the benefits, there is less competition for higher price point assets, leading to advantages pricing and better going in yields.
Ross Cooper: Additionally, our platform strength includes the skillful management of Kim Cohen's existing collection of lifestyle assets which features its own dedicated operations team, which is well equipped to drive growth at these differentiated dynamic properties.
Ross Cooper: Waterford stands out as a market dominant asset with multiple retailers posting some of the highest traffic counts and sales performance in their respective chains in both Florida and nationwide.
Ross Cooper: The Open Air grocery format has a highly complimentary tenant mix of discount and full-line soft goods, entertainment, dining, health and wellness, and fitness options that perfectly cater to the local demographic.
Ross Cooper: Waterford's value proposition extends beyond the low 7% going and cap rate we under wrote. The property built in 1999 has significant near, medium and long-term upside.
Ross Cooper: With several junior anchor leases expiring with no further options, after 25 years, we have substantial mark to market opportunities over the next five years.
Ross Cooper: Our ability to continually upgrade the caliber of tenants and market rents, commensurate with current sales performance supports a robust growth trajectory and compound annual growth rate we rarely see.
Ross Cooper: Needless to say, we couldn't be more enthusiastic to add this to our portfolio and expected to be a major contributor for our company for many years to come.
Ross Cooper: As we shift our focus to 2025, the other initiative that's beginning to take shape relates to our structured investment program.
Ross Cooper: Since inception in 2020, we have touted the program as an opportunity to get our foot in a door on high quality real estate at attractive returns while having a right or first offer or refusal providing the potential to ultimately own the asset.
Ross Cooper: We are now seeing this opportunity materialized as we conduct few diligence on a few existing investments
Ross Cooper: with the potential to convert from mezzanine financing to outright ownership, while still early in the process.
Ross Cooper: This could solidify our view of the structured opportunities as a future long-term pipeline to ownership.
Ross Cooper: Turning to the transaction market, with continued retail optimism and capital expressing a strong desire to own an invest in open air retail, we have seen an uptick in higher quality product hitting the market.
Ross Cooper: We believe the bid S-Bread will continue to narrow into 2025 with transaction volumes increasing to levels we haven't seen in the past couple of years.
Speaker Change: We look forward to finishing the year strong and getting 20-25 off to a running start. And with that, I'm now happy to pass it off to Glenn to provide the financials and updated outlook.
Glenn: Thanks Ross and good morning. Our strong third quarter results continue to demonstrate the strength of our operating platform and our high quality open air grocery anchored investment portfolio.
Glenn: Highlights for the quarter include all-time high, least occupancy, impressive positive leasing spreads and solid same-side NRI growth. In addition, our significant liquidity capacity and well-positioned leverage metrics provide as optionality on growth opportunities.
Glenn: Now to some details on the third quarter results. FFO was 287.4 million, or 43 cents per diluted share, representing per share growth of 7.5% compared to last year's third quarter.
Glenn: For some further color, we generated 394.1 million of total pro-rata and a Y in the third quarter, an increase of 51.3 million or 15 percent over the same period in the prior year.
Glenn: This growth was driven by 39 million from the RPT acquisition and 12 million from the balance of the operating portfolio primarily driven by a higher minimum rent fueled by quick arrink commencement.
Glenn: The NRI growth was offset by greater pro-rattit interest expense of 16.3 million due to higher debt levels that I'll touch on momentarily.
Glenn: Turning to same side N.O.I. We generated positive 3.3% growth for the third quarter. The primary driver continues to be higher minimum rents contributing 3.9%.
Glenn: Driven by contractual running creases and fancester rent commitments from the sign, not open pipeline, which compressed 10 basis points from last quarter.
Glenn: Also, overall recoveries impacted same-side N.O.I. growth by 50 basis points, mostly attributable to seasonal spending. Edition, our overall N.O.I. continues to benefit from lower credit loss.
Glenn: For the third quarter and the first nine months, our credit loss was 45 basis points and 73 basis points respectively, which is comfortably at the lower end of our assumption.
Speaker Change: and want to take a moment to provide some additional detail on our sign but not open pipeline.
Speaker Change: At the end of September, the sign-out-open pipeline represented 310 basis points of occupancy related to 399 leases, totaling 61.2 million of annual base rent, including 5.1 million from the recently acquired RPT portfolio.
Speaker Change: New Lisa's totaling 13.6 million were added to the Snow Pipeline, offset by 15.9 million of ABR that commenced during the third quarter.
Speaker Change: of the 61.2 million of the snow pipeline, approximately 90% is expected to commence by the end of 2025 and generate about $40 million during 2025, providing us healthy momentum as we look ahead.
Speaker Change: Turning to the balance sheet, we ended the third quarter 2024 with consolidated net debt even at a 5.3 times.
Speaker Change: on a look through basis, including pro-rata JV debt and perpetual preferred stock outstanding, net debt to EBITDA was 5.6 times. The best level since we began reporting this metric in 2009.
Speaker Change: During the third quarter of 2024, we increased our turn-long from 200 million to 550 million, adding five additional lenders to the facility. The blended oil and rate for this facility is 4.61% with a final maturity in 2021. Separately, we issued a new, long, tenure, unssecured bond, which
Speaker Change: The proceeds from this issuance are currently invested in short-term interest-faring instruments, pending the February 1st, 2025 maturity of our 3.3% $500 million bond.
Speaker Change: Also, during the third quarter we received an A-Onsecure debt rating from Fitch with the stable outlook.
Speaker Change: and S&P raised us to a positive outlook from stable, achieving another of our 2025 goals.
Speaker Change: The A-Mine is very impactful as it has lowered the cost on the 860 million of term loans outstanding as well as on our $2 billion revolver which currently has zero drawn on it.
Speaker Change: These costs improvements are in addition to the reduction received from achieving our scope one and scope to greenhouse gas emission reduction targets associated with our $2 billion revolver and 3010 million of term loans.
Speaker Change: Now for an update on our outlook.
Speaker Change: Based on the strength of our year-to-date results in expectations for the fourth quarter, we are again raising our FFO PURD Bluetooth Share Range to $1.64 to $1.65 from the previous range of $1.62 to $1.62.
Speaker Change: Our increased FFO per share outlook range incorporates the following updates for our full-year assumptions.
Speaker Change: St. Sight N.O.I. Growth of 3.25% plus
Speaker Change: from the previous range of 2.75 to 3.25 percent and is inclusive of the RPT assets.
Speaker Change: Interesting Come is expected to be between 20 million and 22 million.
Speaker Change: and his previously announced we increased our investment guidance to a range of 555 million to 625 million.
Speaker Change: which includes the fourth quarter acquisition of water for lakes for $322 million. We also lowered our disposition outlook by $50 million to $250 million to $350 million to $300 million.
Speaker Change: Looking ahead, we plan to provide our 2025 outlook when we report our fourth quarter results, but we wanted to call out the following. We do not expect to realize the same level of interest income in 2025, as we plan to maintain approximately 100 million in cash on a go-phode basis.
Speaker Change: As I previously mentioned, we will use our existing cash on hand to pay off the 3.3% $500 million bond Do 1 February 1, 2025
Speaker Change: and with that, I want to thank all of our associates who's on wavering commitment, drove these outstanding results and positions us well to continue our growth path. We are now ready to take your questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad.
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Speaker Change: We ask that you please limit yourselves to one question. If you have further questions, you may reenter the question queue.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: and the next episode.
Speaker Change: and our first question.
Speaker Change: comes from Alexander Goldfarb of Paper Sandler.
Speaker Change: Please go ahead.
Alexander Goldfarb: Hey, good morning, morning out there. Conor, you mentioned the outperformance of R.P.T. and I have to believe it's a price similar for wine garden.
Alexander Goldfarb: As you guys did here today and think about those two transactions.
Alexander Goldfarb: is their way to quantify how much, you know, both transactions exceeded.
Alexander Goldfarb: You're original underwriting, I mean, you know, whether it's basis points or an actual dollar or FFO or some metric just so we have a sense of the magnitude of, you know, how this portfolio is performed versus your original underwriting.
Speaker Change: Thanks Alex. Yeah, obviously we're in through is by the results RPT has been ahead of expectations.
Speaker Change: I think when you look at our underwriting for large transactions like that, you can see from really the implementation and the execution that both on the synergy side we've been able to outperform our underwriting as well as the NOS assumptions. I think for this quarter actually RBT is same say NOS is 10.3% which is a very strong number.
Speaker Change: again, a lot of it is driven by.
Speaker Change: Look at the belief that it's not about getting big to be bigger. It's really about what enhances the growth profile of the organization. And if you look at when we did wine garden and when we extricated RBT, I think both transactions really helped improve the growth profile of Kim Co.
Speaker Change: and that's what's shining through I think today and we're really enthused about going forward, integrating.
Speaker Change: Every asset into our platform, because again, I think that's where the Kimco platform really shines is where we can get into the asset, use our platform, use our team to really continue to unlock a lot of value for our shareholders.
Speaker Change: The next question comes from Michael Goldsmith of UBS. Please go ahead.
Michael Goldsmith: Good morning, thanks a lot for taking my question. Stickin' with the RPG theme here. Seems like a big step forward in the RPG's small shop leasing. So can you talk a little bit about what you're seeing with that portfolio? Do you still see that large opportunity to close the gap? How your relationships and scale are helping here? And does that really set up 20, 25 to be a year where you truly kind of compress that gap into the core, Kim GoPortfolio, thanks.
Speaker Change: Yeah, and that's a good question. Appreciate you asking it. It's all the above, yes. We definitely see the opportunity to continue to momentum that we're starting to gain. Now that we have three quarters.
Speaker Change: behind us in absorbing our PT. The operating team is firing on all cylinders. The court portfolio that we retain with our PT after we dispose of a handful of sites is extremely strong, not only in the...
Speaker Change: and some bell markets in Florida obviously but the Midwest Fort Florida is doing an exceedingly well. The demand drivers are real, we talk about it a lot. It's real for our portfolio, the Kimco Corr as well as our PT, the lack of supply.
Speaker Change: The enhanced discerter operating team that were really focused on driving the small stop initiative is having an impact and you're starting to see that through it flow through the numbers The big contributor to is obviously getting the rim flowing lead
Speaker Change: Significantly compressed one of the largest no pipeline, it's very, quickly upon the close of that transaction through the first part of the year and I think that's a contributor to some of the outperformance of the same site-siding Q3 and we'll continue along the way. We also, look.
Speaker Change: and Clark. We're going to start with the transaction and excellent personnel, excellent team members and they're doing an incredible job. Now, nine months into the organization so we couldn't be more thrilled by the activity.
Speaker Change: Next question comes from one, Sanabria of BMO Capital Markets. Please go ahead.
Speaker Change: Hi, good morning. Just hoping you could talk a little bit more about the structure and investments opportunity about the rights and that you have there. And I guess how big the quantum of opportunities for traditional peace and black acquisitions could be on a net of our practices.
Speaker Change: Sure, happy to. So as you know we really do yet think about this program for a variety of reasons. One person for most, you know, the real state itself are assets that we're very comfortable with. Again, we'd be happy to own if the opportunity presented itself. But if it doesn't, we get very attractive returns in the interim at a very comfortable basis.
Speaker Change: So every deal, every partner has a little bit of a different life cycle, a little bit of a different strategy. But what we are starting to see on a few of these deals that we've been in for a couple years, two, three, four years.
Speaker Change: is that they are starting to get towards the end of that life cycle. So having that right or first off or that right or first refusal is presenting itself as an opportunity. There's one particular asset right now that we're working very closely with our partner on a potential acquisition of the fee.
Speaker Change: So that might be something that we'll be able to...
Speaker Change: Seematerialized in the beginning parts of 2025.
Speaker Change: But we have about 470 million outstanding in that program right now.
Speaker Change: The next question comes from Dory Kestin of Wells Fargo. Please go ahead.
Dory Kestin: Thanks, Gwang. I just continue to add to projects now entitled, how are you thinking about the timing to activate these over the next few years or as you said before, JVM or so. I also are able to provide some guardrails around.
Dory Kestin: and the Toto Cost in potential timing.
Speaker Change: Yeah, I mean, we're going to preserve the discipline that we've always had with all these opportunities. And so now that we've had 12,000 units in total, which is an extraordinary effort over the last, you know.
Speaker Change: 8 to 9 years starting for zero. We'll now continue our process in terms of looking at activations. Obviously, we have suburban square under construction right now in our preferred structure which...
Speaker Change: Yields attract for turns for us and enables us to activate that project with a very sound partner. We have a handful of opportunities that we're closely monitoring and looking at. Market fundamentals as cost start to come down and rebalance.
Speaker Change: Could be potential opportunities in 25 but we want to preserve and maintain this district discipline.
Speaker Change: So it's always a creative to the organization, but between that potential ground basis, which we've already done before, maybe the potential monetization, so many entitlements that are part of the developers, as are all real options on the table that we're considering.
Speaker Change: and Jerry. Yeah, I would just be there just so you'd have some frame of reference.
Speaker Change: Today we have 35 hundred units that are actually operational.
Speaker Change: and the form of some that have been ground-leased with the parties built them and operating on our land.
Speaker Change: and the project that we have both at the Milton.
Speaker Change: Next question comes from Jeff Spector of Bank of America. Please go ahead.
Jeff Spector: Great Good Morning and Congratulations on the Quarter. I wanted to focus on your comments around lifestyle centers.
Jeff Spector: and the importance they're having across different markets in terms of acquisition opportunities.
Jeff Spector: Are you focused on select markets and demographics or with dominance in a market fit the criteria for Ken Cohen.
Speaker Change: It's a great question. I think one of the benefits of Kim Coal and one of our differentiators is our diversification.
Speaker Change: and you think about geographic diversification and the importance of that as well as diversification of formats and we're able to create value with our platform in all formats and all geographies.
Speaker Change: So some of it definitely has to do with driven by opportunity and where we see deals in certain markets that we like.
Speaker Change: But it also very much has to do with the team and the performance with the...
Speaker Change: with the Leasing team and operations team, the management when you put it all together, we've seen great opportunity to create value on these assets.
Speaker Change: which is again when you think about the competition for this, it is very much limited compared to the neighborhood gross or any crutchopping center where there's a significant amount of capital that's chasing those deals.
Speaker Change: So, for right where we stand today and where we sit, we think that the larger format, higher price point assets, is where we can differentiate our team and our capital. But again, there's a variety of opportunities in various formats that we've been able to take advantage of over various parts of the cycle.
Speaker Change: The next question comes from Samir, Conor of Evercore ISI. Please go ahead.
Speaker Change: Take good morning everyone. I guess Conor, you know, with the focus being on on 25 now, just this maybe walk is through, kind of.
Speaker Change: Building Blocks for Girls. I know you talked about the upside to act at the back of the fence and the straps side. But I hope this thing through, I mean, this year you're generating pretty solid growth here at 3 and a quarter.
Speaker Change: So are we setting up for another year or sort of plus three or is this even further acceleration and makes your help us think through growth for next year. Thanks.
Speaker Change: We're not going to be giving guidance or next year on this call but we are going through the budgeting process now. We are looking to see how we enhance the growth going forward. Certainly this has been a good year operationally for Kim Co. If you look at the bankruptcy season as I mentioned earlier in my remarks.
Speaker Change: has been pretty muted in those that have gone through the bankruptcy process. Those leases have become assets and been acquired by other retailers that are credit-credit tenants.
Speaker Change: So I think a lot of it has to do with obviously there's a massive election coming up. The consumer continues to be resilient. The retailers continue to want to expand in shopping centers.
Speaker Change: of high quality with really strong operators.
Speaker Change: and we continue to see the outreach pouring in for first bases that we have available. The backdrop is one where we continue to see surviving muted going forward.
Speaker Change: and the demand being diverse. And so as we continue to hopefully enhance the growth profile, we'll be looking at ways to compress the sign but not open pipeline.
Speaker Change: Enhanced the same set NOI growth for the organization and continue to push FFO growth. So we've got the ingredients, we've got the portfolio, we've got the team and now again we're looking at how to incrementally improve the growth profile and some of the differentiators that Kim Cohen has that others don't.
Speaker Change: We talked a little bit about the 12,000 entitled apartment units.
Speaker Change: We may look to monetize some of those and recycle those creatively in the operating shopping centers.
Speaker Change: We also may look to recycle some flatter high quality assets where we can recycle into, again, a higher growth shopping center. So those are the types of opportunities we look at and try and see that there's going to be significant opportunity in 25 to continue to enhance the growth profile.
Speaker Change: The next question comes from Florida's Van Degom of Compass Point. Please go ahead.
Speaker Change: Hey guys, morning.
Speaker Change: So Conor Flynn, up on what you were just talking about, monetizing some asset. I mean, you have obviously, you've got a lot of potential things you could monetize, including your apartment entitlements, your ground rent.
Speaker Change: Do you see, as you look at opportunities to deploy that capital into higher growth assets, are they going to be?
Speaker Change: Smaller Transactions in your view, or do you see bigger opportunities out there as well, where you might do larger transaction as you try to match one of these things as well.
Speaker Change: Yeah, I think it's a good question for us. I think what do we look at maximizing?
Speaker Change: Price and Maximizing Value
Speaker Change: We seem to be achieving that in the one-off basis, so on, on a one-by-one deal, whether it's through, you know, each of those are unique circumstances, whether it's an entitled.
Speaker Change: He's a property that's ready to be built.
Speaker Change: and monetizing that to selling it to a developer.
Speaker Change: or it's a long-term ground lease with a credit tenant that, again, might suit a 1031 buyer or a triple net type of investor. So each of those are unique, the ingredients are unique on each parcel. So we've been combing through that, looking to see obviously what's the best results we can and match funding that into a higher growth shopping center.
Speaker Change: and we're excited about the wrong ingredients we have to work with. And I would just say that we're really excited to be at a point in the evolution of the company in our asset recycling where...
Speaker Change: Long Gone are the days where the higher cap rate to luteive asset sales.
Speaker Change: We're leading the charge. Now it's really focused on a creative asset recycling. So looking at these opportunities that we mentioned with the ground leases, or monetizing some of our entitlements is a really strong way for us to creatively redeploy that capital versus years past, which wasn't quite the case.
Speaker Change: [inaudible]
Speaker Change: Next question comes from Craig Mailman of City, please go ahead.
Speaker Change: and I'm taking the morning.
Craig Mailman: Just kind of curious.
Craig Mailman: If your internal views of inflation have changed at all, particularly some of the different policies from different administrations, how that could potentially be impacting.
Speaker Change: How do you view the price, appropriate pricing for the real estate, going forward, if, for instance, you know, inflation, say, a little bit higher than it has. It seems to have been a talent in the last couple of years here for everyone's ability to push rents.
Speaker Change: Inflation is still very much a focus. I mean, you look at sort of the policies of both candidates. I think there's probably...
Speaker Change: You know, inflation issues on both sides. So I think when we look at our assets and the growth profile.
Speaker Change: and making sure that we continue to outpace inflation. I think that's critical for us.
Speaker Change: You know, clearly inflation for retailers that own a lot of inventory is actually a good thing. It's one of those situations where the consumer continues to gravitate towards the shopping center. The employment market is still very strong, or traffic is up to percent year over year.
Speaker Change: I think when you look at the forward projections of inflation, it seems to be that the Fed is confident in their positioning there, bringing it back down to their targeted levels, but again, it's something we're going to have to watch closely.
Speaker Change: The next question comes from Handlesing just of Missouhou. Please go ahead.
Speaker Change: Hi, good morning, this is Robbie Badele on the line for a hundell.
Speaker Change: One of us who about transactions here, he discussed the competitive dynamic in the acquisition market, the raised acquisition guidance, we also raised the cap rate by 56 bits, are there smaller buyers that these check sizes and what specifically is driving the upward cap rate projection?
Speaker Change: To our so the cap rates are reflective of the transactions that we've completed this year. So it's been a mix of our structured program which are higher octane, higher yielding investments and then of course layering in water for it in the low seven. So when you get that blend that's where we set old in terms of the cap rate range.
Speaker Change: There's a lot of competition out there for transactions.
Speaker Change: [inaudible]
Speaker Change: on the last several years, is really to retell that are now jumping back in. So we're seeing a lot of competition, particularly for the neighborhood grocery and jobbing centers, and frankly, it's all across the country.
Speaker Change: A few recent examples of some transactions that just occurred. There was a grocery shopping center in Las Vegas that just traded in the mid-fives.
Speaker Change: We were looking at a deal in suburban Detroit and Michigan.
Speaker Change: That was just recently awarded at a sub-6 cap, which is a very aggressive price for that part of the country that we haven't seen in quite a while. So it's very clear to us that cap rates are going to continue to be very stable if not continue to compress.
Speaker Change: Some of that is clearly going to be dependent upon where the rate and barming goes. We've continued to see the volatility. In fact, since the rate cuts, which I think the market really anticipated was going to lead to lower interest rates. We've actually seen the longer end of the curve.
Speaker Change: Expand either 60 bases point depending on the day. So, you know, as long-term investors, you know, we're focused on what is the long-term growth trajectory of those assets as opposed to just going in cap rate, but that's very much a consideration. And we'll just continue to pick our spot to be disciplined.
Speaker Change: The next question comes from Greg McGinnis of Skoshe Bank. Please go ahead.
Speaker Change: [inaudible]
Greg McGinnis: Ross, I just wanted to touch on the transaction environment again. I mean, you mentioned that we could see greater investment volumes than we've seen in recent years. I mean, what's driving sellers to the market? I know you mentioned that there's a lot of competition for deals, but I'm curious what's driving sellers to be selling right now. And does this remain the case despite recently rising interest rates?
Greg McGinnis: And finally, if you could just touch on cap rates and how they may have moved since you guys initially agreed to the Waterford transaction a few months ago. Thanks.
Ross Cooper: I think every seller, every selling entity has their own rationale for why they might look to move an asset. I think in this environment, as we've talked about,
Ross Cooper: liquidity needs or any sort of redemptions if it's a part of some fund.
Ross Cooper: The most liquid assets today at, you know, the pricing that most likely is closest to where their basis is tends to be in open-air grocery-anchored shopping centers as opposed to some other asset classes. So we've seen investors or institutions take advantage of that.
Ross Cooper: and we've been the beneficiary of that in some cases, in particular Waterford.
Ross Cooper: You asked about the pricing on Waterford.
Ross Cooper: And as I mentioned, every deal has its own sort of life cycle. This was one that we've been working on since the first quarter of this year and didn't close on it until the fourth quarter of the year. I mean, there's a variety of reasons for that, one in particular being the CMBS loan that we assumed.
Ross Cooper: which, when you look at the rate there at 4.86%
Ross Cooper: for the next five years.
Ross Cooper: happen to be right on top of the bond that we issued, somewhat of a coincidence, but that had to do with the timing. So again, we look at these things as long-term holds, so the fluctuations in the market and the pricing environment over the course of that six or eight-month period, it's really something that...
Ross Cooper: Over the six or eight month period, it's something that we...
Ross Cooper: Sorry, I lost my train of thought. We had an alarm go off in here.
Ross Cooper: So, anyway, yeah, so for that particular asset, I would tell you that today the pricing would be a little bit different from where we were at the beginning of the year, but again, as a long-term owner-investor, it's not something we look at at a point in time. We're just really excited about that asset at that pricing for decades to come within the portfolio.
Speaker Change: The next question comes from Caitlin Burroughs of Goldman Sachs. Please go ahead.
Caitlin Burroughs: Hi, good morning. I was wondering if you could talk a little bit more about the leasing environment I feel like it doesn't come up as much because it seems to be a given that it's strong these days But how would you characterize new leasing interest and tenant demand versus the recent past and how do you expect that to translate to cash? Spreads and lease bumps maybe tenant turnover or whatever else it might be relevant to. Thanks
Speaker Change: Thanks for asking. You're right, I feel like it's an afterthought at times. But obviously, starting with the supply-demand, I say it all the time, new supply, high demand, is sort of the driver to, I think, the success of the leasing environment. When you look at the go-forward, when I look at our 25 rollover schedule on the anchor side,
Speaker Change: You know, we have over 70% of our first half rollover schedule in 2025 either resolved or in the process of getting resolved with a lease or renewal.
Speaker Change: And that's well ahead of plan to where we were last year. So when I look at comparative statistics, the historic trend rate to where we are today, we're ahead of plan in that regard. And then on the overall rollover schedule for 25, we're just slightly ahead of plan to where we were at this time last year.
Speaker Change: In terms of the use categories, obviously you have Hot Off Price as your leader. For us, this year on the Anchor side, grocers were number two at almost 20% of our deal flow.
Speaker Change: for the anchors.
Speaker Change: So it's just a demonstration that that product category continues to excel, and they're really looking for market share growth opportunities and also expansion into new markets as they build out their distribution facilities. I think when you listen to some of the retailer commentary as well, you're hearing...
Speaker Change: Some of these comments come out that, you know, they're trying to hit their store count and they're still struggling to hit their store count at times, creating new opportunities for us to step in and help facilitate that engagement.
Speaker Change: So, we're working very, very closely with our retail partners to achieve that opportunity. And so, we're also now looking at 26 and 27.
Speaker Change: in our rollover schedule and how does that match up well with
Speaker Change: their intentions and their growth strategy so we can get well ahead of plan here.
Speaker Change: as that ties to
Speaker Change: Obviously, rent growth, as you can see through our spreads, we've continued to...
Speaker Change: XLNXC, and you have prior quarter spreads on the New Deal side or Renewal side this quarter.
Speaker Change: The vast majority, over 90%, were on the small shop side, closer to market.
Speaker Change: But we'll continue to have that opportunity to push those spreads as well. So, net-to-net, the environment still remains strong. We always look for cracks in the system, but currently we don't see anything that's material.
Speaker Change: And lease costs, as you know, we've continued to hold steady. Again, a good majority of the deals this quarter were on the small shop size that drive lower costs.
Speaker Change: The next question comes from Linda Tessai of Jefferies. Please go ahead.
Linda Tessai: Yes, hi. A question for Ross. Regarding the mezzanine investments, $470 million spread across a couple dozen assets, you highlighted a few times their long-term holds. Can you give us a flavor of what those properties look like, where they're located, and how they fit in from a quality and location perspective?
Ross Cooper: Sure, absolutely. When you think about the composition of the structured program, it really does mirror, I would say, the composition of our greater, you know, owned portfolio. It's geographically diverse.
Ross Cooper: We have some neighborhood grocery anchored shopping centers as well as some larger lifestyle assets. So, it does reflect what we're very comfortable owning and operating in the event that we were able to get our hands on them. So, it's consistent and I think that there's probably going to be some opportunity within each and every format.
Speaker Change: The next question comes from Wes Goloday of Baird. Please go ahead.
Wes Goloday: Hey, good morning everyone. We have a residential opportunity at the Orlando asset and then can you quantify or maybe give us a view into 2025 as far as how many big chunky assets may be in the pipeline?
Speaker Change: Yeah, on the residential side for Waterford, I mean, it's something that we, our team, our development team, will be jumping all over day one. Obviously for us right now, we didn't underwrite any opportunities as it relates to that. Our focus is really enhancing the quality of the retail.
Speaker Change: that's at the center and continuing to see that near-term upside. So that will be our priority one, but as always we do with all acquisitions is we look deeply about the other opportunities that we can unlock and mine for over the long term.
Speaker Change: Yeah, I think with all of these larger assets, when you look at a larger landmass,
Speaker Change: it creates additional opportunity. We take a conservative approach in terms of our initial underwriting, and we don't anticipate or include.
Speaker Change: any future growth opportunity for densification. But what we have come to see is that those opportunities do exist and it's upside on top of what we've underwritten, not too dissimilar from the Stonebridge asset that we acquired last year that has multifamily opportunity in the future as well.
Speaker Change: And then on the second part question about potential larger assets to be acquired in the future, again, those are lumpy. You know, typically, you know, we look at everything that's in the market.
Speaker Change: and Ross has mentioned previously that we're really looking at some of the structured investments as potential fee investments now as another opportunity going forward for us next year.
Speaker Change: The next question comes from Alina Roja of Green Street. Please go ahead.
Alina Roja: Good morning.
Alina Roja: Kimiko's NOI growth, CAGR, over long periods, I'm looking at ten years and five years, has been two to two and a half. But recently we have seen a remarkable shift to the positive in fundamentals. Retailer demand stronger than in prior years.
Alina Roja: So, how sticky do you think these strong fundamentals will be, and how likely do you see materially beating this 2 to 2.5 historical CAGR, same property NOI CAGR, over, let's say, the next five years?
Speaker Change: It's a really good point, and I think it's really sort of the very early innings of this.
type of retail revival that we're experiencing right now. And a lot of that outsized growth that we're experiencing today is driven by the lack of new supply over the last 13 years and then the rebound in demand.
Speaker Change: And so when you look at where
The percentage of CapEx is on an NOI basis today.
Speaker Change: and then you look at it next year.
Speaker Change: You're going to start to see that inflection point.
Speaker Change: If the momentum continues where we don't have a lot of turnover, we don't have a lot of bankruptcies, and retention rates remain high, where you start to have a much stronger growth rate because there's lack of turnover in the space. There's lack of capex needed to build out space.
Speaker Change: and you start to see the renewals taking up the lion's share of the deal volume, which has no tenant improvement allowance or landlord work.
Speaker Change: That's really sort of the start of what I would anticipate to continue as we continue to monitor the vibrancy of retail.
Speaker Change: There's really just a diverse set of demand drivers we're experiencing today. And again, we don't see the supply side changing anytime soon. Just because of the return on cost that you need, there's still a long way off in terms of making those development deals pencil.
Speaker Change: That's what we continue to watch as we go into next year, and if that pace continues, you'll hopefully see an improved growth rate going forward. That's exciting to CHEMCO.
The next question comes from Mike Mueller of J.P. Morgan. Please go ahead.
Mike Mueller: Hi, was the decision to lower disposition guidance just timing or is it a view that you just want to sell fewer assets today?
Speaker Change: Yeah, it's a combination of a few different factors, you know, we're in close
conversation with all of our joint venture partners. Some have had different
viewpoints and I think old strategies. You know, we have a few assets, particularly on the West Coast that have currently been in the market with one of our joint venture partners sort of leading that charge. And so there was a little bit of uncertainty earlier in the year as to how much of that might actually transact. We have a lot more clarity and transparency in that now, which enabled us to lower the guidance. And I think also just a combination of
The performance in the portfolio, in particular some of the RPT assets that significantly outperformed initial expectations.
The next question comes from Ronald Camden of Morgan Stanley. Please go ahead.
Hey, just going back to the same store question, just asking it a different way. We're looking at sort of the three and quarter
Speaker Change: for the year.
Ronald Camden: As you sort of flip the calendar, you talked about occupancy and potential to gain more, sort of good releasing spread. Is bad debt really the only thing we should be focusing on for next year to maybe slow things down, or are there any other considerations we should think about?
Speaker Change: You know, it's a good question. Look, the same site has been strong as we all talked about. There's a lot of good things that are happening.
And for us, in terms of rent condensements have been quicker. The pipeline, as we talked about, is pretty strong. So that snow pipeline, we think 90 percent of
Speaker Change: The snow pipeline will commence during 2025, so that's going to be a real driver. We have very much focused on credit loss, so you see credit loss has come down.
Speaker Change: Historically, though, credit loss has been in that 75 to 100 basis point range. We're at the very low end of that range today and we'll continue to monitor it. But based on where things are today, I think that's probably the right starting point for us.
The next question is a follow-up from Alexander Goldfarb of Piper Sandler. Please go ahead.
Alexander Goldfarb: Thanks. Glenn.
Hey, just a question on maturities in 25.
He obviously pre-funded part of the maturities, but I think there's another bond, $250 million.
Speaker Change: from Weingarten that has.
I think it's a sub two.
Speaker Change: Coupon because of the gap mark to market. Can you just talk about that bond and you know what your thoughts are?
Speaker Change: Sure, Alex. So we have.
290 million of remaining maturities to address in 2025.
Speaker Change: $240 million is a 3.85% Weingarten bond that, to Alex's point, has an effective interest rate of 1.48%.
And there are three mortgages that we'll be paying off in March.
Speaker Change: that have a coupon of 3.5%.
Again, you know, we'll look for the right opportunity to probably go back to the bond market or, you know, we'll see where other things are, but we're in really good shape. We have full availability on our revolver today, so there's $2 billion available there. We have lots of different options about how to approach.
This concludes our question and answer session. I'd like to turn the call back over to David Bujnicki for any closing remarks.
I'd like to thank everybody that participated on today's call. We look forward to getting together and seeing a few of you at the upcoming NARIC conference in November. As Ross mentioned, just anybody who's going out and celebrating Halloween, have a happy and safe day today. Thanks so much.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.