Q2 2019 Earnings Call
Good day, and well welcome to Kimco second quarter 2019 earnings conference call and webcast.
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I would now like turn the conference over to Mr., David <unk> Senior Vice President. Please go ahead Sir.
Good morning, and thank you for joining Kimcos second quarter 2018 earnings call. Joining me on the call are Conor Flynn, our Chief Executive Officer, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, Kimco, CFO , David Jamieson, our Chief operating officer as well as other members of our executive team that are present and available to answer questions during the call.
As a reminder, statements made during the course of this call may be deemed forward looking and it's important to note that the companys actual results could differ materially from those projected in such forward looking statements due to a variety of risks uncertainties and other factors. Please refer to the company's SEC filings that address such factors.
During this presentation management may make reference to certain non-GAAP financial measures that we believe help investors better understand kimcos operating results reconciliations of these non-GAAP financial measures can be found in the Investor relations area of our website and with that I'll turn the call over to Conor.
Thanks, Dave and good morning, everyone.
With the release of our second quarter results, it's clear that our 2020 vision is becoming a reality as we continue to execute and create long term value for our shareholders.
We made solid progress on our portfolio leasing as well as our signature series platform positioning us to drive FFO and EBITDA growth reduced leverage and improve our dividend coverage.
We also have the benefit of balance sheet flexibility and liquidity with no significant debt maturities coming due until 2021.
Our team is committed to achieving our goals and putting us in a position of strength as new opportunities emerge now for some highlights and some observations.
The progress on our signature series is more and more visible as our renderings turn into realities.
Just this month the witmer Kimcos residential tower at our mixed use Pentagon Center project secured its temporary certificate of occupancy.
Pre leasing activity has exceeded our expectations as we now have leases for 46% of the units with tenants moving in ahead of schedule.
We're benefiting from the property is adjacent location to the future Amazon National landing headquarters a project that is still several years away.
But is already driving a significant increase in both residential and retail demand.
It's exciting to see this first phase of our Pentagon Center redevelopment project come to life and we're equally excited about the future phases still to come.
Going forward the majority of our capital allocation will be on redevelopment, including selective mixed use opportunities, where we see better risk. Adjusted returns currently we have over 4000 apartment units in title and see many more opportunities to expand this across our portfolio as we seek out the highest and best use of our real estate.
Just this quarter, we achieved additional entitlement approvals for 350 apartments at our Boca Raton asset, where we have executed a ground lease with a well capitalized local multifamily developer.
As for our operating portfolio leasing volume remains robust as our portfolio and our leasing team continued to shine.
Overall shopping center demand remains strong for the right real estate.
New leasing spreads came in this quarter at 37% and combined spreads were 7.9%.
We believe kimco is at the hard corner of where value Maeve convenience, which has melted likes to say is the sweet spot of retail real estate.
We're seeing continued demand as our occupancy level matched its record high of 96.2% with a healthy level of interest for potential spaces, we may recapture.
Given the continued strength of our portfolio, we're comfortable raising our same site NOI range for the year.
Recognizing that retail continues to evolve at a rapid pace, we continue to position our portfolio in dense markets and key growth MSC days, where we see the most favorable supply and demand dynamic and redevelopment potential.
In addition, as buy online pickup in store trend continues more emphasis has been placed on the physical store as retailers realize their tremendous value as fulfillment hubs for the digital business.
Target for example indicated on their most recent earnings call that store fulfillment is more than 40% cheaper than fulfilling orders from warehouses and their in store sales per square foot have grown at a rate of 4% per year.
It is further evidenced that brick and mortar can support incremental growth from online business without hurting in store sales.
While target along with home depot are ahead of the pack in their seamless integration of ecommerce with bricks and mortar. The pack is moving in the right direction.
E retailers across the spectrum are partnering with brick and mortar retailers like kohls and target.
They are leveraging these locations to use returns, which in turn is driving up foot traffic, while some retailers will be unable to pivot and embraced the change.
Quality real estate will allow the nimble retailers to adapt to the new normal and find the right merchandising mix to drive traffic at all points of the day.
While we've discussed this before we have many unique attributes that support our proven approach beyond the quality of our locations and our team we have many below market leases, great tenant diversity and a proven ability to reinvent and transform our business as we have done over the last five decades.
At Kimco, our focus is to look forward and anticipate the future of retail and be one of the leaders in providing the right real estate.
I would like to thank our team for working tirelessly in a challenging environment. This group never ceases to Amaze me and what they can accomplish the greater the challenge the more they rise to the occasion.
Finally, I'm proud that kimco ranked at the top of all retail for both social and environmental progress in the ESG rankings by ISS.
And through our recent inclusion in the foot Sea for good Index series. This is further evidence of a culture that not only wants to be the best in the sector and also want to do things the right way for our people our shareholders and the next generation of stakeholders and our efforts to create long term sustained value for us.
Thank you Connor and good morning.
We continued our money.
Couple of transactions in the second quarter selling three shopping centers for a total gross price of $103.7 million with $65.8 million at kimco share.
Subsequent to quarter end, we sold another two joint venture assets with a gross value of $43.6 million with kimco share being approximately $6.5 million.
Given the level of dispositions completed so far this year as well as the anticipated closings in the back half of the year, we're comfortable at the high end of the dispositions range of 200 to 300 million.
Our strategy has been paying off as the core portfolio continues to shine and provides stability and upside for the company.
Notwithstanding the success, we will keep with the strategy of being active asset managers of our portfolio.
Where we envision risk or downside to a property or where we believe we have maxed out value for that center, we have moved them to the market and out of the portfolio.
Our recent transaction activity demonstrates that demand for our assets remains very healthy of particular note with the level of interest in our late some New York asset.
Located in upstate New York and with the deal price north of $73 million, the solid quality and depth of the bidder pool reinforces our view that the marketplace. The marketplace is significant value on open air shopping centers.
Moreover, our buyer was able to obtain attractive financing, which continues to be readily available for our product type.
With the 10 year Treasury rates, approximately 120 basis points below the 52 week high borrowing costs remain favorable for the Levered buyer.
As it relates to core market institutional quality assets demand outweighs supply in the marketplace and pricing reflects this.
Recent transactions in Northern California, and Texas have traded at sub 5% cap rates a significantly larger wholesale club anchored center in Palm Beach, Florida as well as our recent grocery anchored portfolio price that just under $500 million in the mid Atlantic region. Both recently traded in the five cap rate range.
While we have seen many examples of single asset sales at very low cap rates. It is encouraging to see a larger sized portfolio also pricing very aggressively.
While we continue to evaluate acquisition opportunities, we did not acquire any assets in the second quarter and do not anticipate buying any properties in the current quarter.
Given the aggressive landscape for high quality core market assets, we continue to see our best risk adjusted return in the reinvestment in our best assets.
This includes repositioning and strengthening the retail while also adding mixed use densification where appropriate.
Overall, the progress we are making has been positive and very exciting for our company as we continue to hit new goals and milestones for the portfolio and the signature series assets I will now pass pass it off to Glen for a look into the financial results for the quarter.
Thanks, Ross and good morning, we are pleased to report another quarter with solid performance our portfolio operating metrics of occupancy leasing spreads and same site NOI growth will generated positive results.
The cash flows from our signature series development projects are ramping up and will continue to be significant contributors to our growth as they reach stabilization over the next 24 months.
Now for some details of the second quarter results as a reminder, as a result of the Navy FFO definition clarification, we no longer include gains and losses from land sales of marketable securities and preferred equity investments in May read Fo.
We are presenting prior periods to conform to this election.
These transaction items were previously excluded from FFO as adjusted and therefore have no impact on that calculation.
Navy FFO was $151.2 million or 36 cents per diluted share for the second quarter 2019, as compared to $158.6 million.
Or 38 cents per diluted share in the second quarter last year.
Included in the second quarter 2019, new Eone FFO, but excluded from FFO as adjusted is $1 million of property insurance proceeds related claims from a Puerto Rico portfolio associated with Hurricane Maria.
Included in second quarter, 2018, FFO, but excluded from FFO as adjusted is $2.8 million.
Primarily from an equity distribution above our basis.
FFO as adjusted or recurring FFO was $150.2 million.
With 36 cents per diluted share for the second quarter 2019, as compared to $155.7 million or 37 cents per diluted share for the same period last year.
Our results include a decrease in annual NOI of $10.9 million compared to the same quarter last year, primarily due to the significant level of dispositions during 2018.
This impact from the dispositions was $16.1 million, which was partially offset by same site NOI growth of $5.2 million and incremental NOI from our development projects of 3.4 million.
FFO also benefited from lower interest expense attributable to lower debt levels and lower non real estate related amortization as compared to last years second quarter.
For the 2019 six month period, new either FFO was 74 cents per diluted share and included $2 million of transaction income items not included in FFO as adjusted this compares to 76 cents per diluted share for the same period last year, which includes $6.4 million of transactional income items not included in FFO as adjusted.
FFO as adjusted for the 2019 six month period was $307.6 million was 73 cents per diluted share compared to $313.5 million or 74 cents per diluted share for the six month period last year.
Our six month results include a reduction in an ROI of $12 million. This includes dispositions, which reduced and a wide by $36.2 million.
Partially offset by same site NOI growth of $13.3 million.
Incremental NOI contribution of $6.9 million from on development projects coming online and higher lease termination fees of 4.3 million.
FFO was also impacted by the adoption of the new lease accounting standard topic, 842, which requires the expensing of internal leasing and legal costs, which were previously capitalized.
Included in Gionee through the 2019 six month period is $5.7 million of previously capitalized costs compared to the same period last year.
FFO for the six months benefited from lower interest expense of $9.3 million versus the comparable period last year due to lower debt levels.
There is no doubt that our efforts to transform the portfolio of proving effective.
Our high quality operating portfolio is generating strong recurring results.
Pro rata occupancy increased to 96.2% of 20 basis points from last quarter and from a year ago.
The improvement is primarily attributable to positive net absorption from the strong leasing activity during the quarter.
We signed 324 leases totaling 1.6 million square feet at a weighted average base rent of $18, an 11 cents during the second quarter.
Pro rata occupancy now stands at 98.
0.2% and pro rata small shop occupancy is 90.5%.
Up 10 basis points, and 30 basis points, respectively compared to a year ago.
Same site NOI growth was positive 2.5% for the second quarter 2019 versus a comp of 3.9%, including 10 basis points from redevelopment last year.
The increase was driven by minimum rent increases, which contributed 310 basis points and percentage rents and other revenues, adding 10 basis points. This growth was offset by lower Ham and real estate tax recoveries of 70 basis points.
For the 2019 six month period same site NOI growth was positive 3.2% versus a comp of 3.2% last year, our spread between same site lease occupancy and economic occupancy increased 40 basis points to 270 basis points from last quarter.
Based on the active leasing volume completed.
From a balance sheet perspective, we have no consolidated debt maturing in 2019, and only $102 million of mortgage debt maturing in 2020.
We have one joint venture mortgage totaling 27 million maturing in the third quarter 2019, Evonik and have an executed term sheet to refinance this mortgage.
Our weighted average debt maturity profile is now just under 10 years and our liquidity position is in excellent shape with over $2.2 billion of immediate liquidity.
Based on our first half performance and expectations for the remainder of the year, we are reaffirming our navy FFO and FFO as adjusted diluted per share guidance range of $1.44 to $1.48.
In addition, we are raising our full year guidance range for same site NOI growth.
From 1.75% to 2.5% to an increased range of 2% to 2.7%.
We remain on track to success successfully achieve our 2019 goals notwithstanding the impact of over $1 billion of dispositions of non core assets over the past 18 months and also the lease accounting change and with that we'd be happy to take your questions.
Yes. Thank you we will now begin the question and answer session.
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And the source of course when you first question comes from Christy Mcelroy with Citi.
Hi, everyone.
With that with the stock price performance then this year what are your current views on where your stock trades today on potentially.
Using equity issuance as a tool to raise capital to further shore up the balance sheet unfortunate development pipeline.
Hey, Christy, Yes, we have been pleased with the stock price performance. So far this year, but we still trade at a discount to any of the we've been we've been looking at that carefully as we as we go forward and think we have some major milestones to hit this year to really execute on the 2020 vision.
We have the funding in place from our dispositions for our redevelopment and development pipeline this year and no real debt maturities. So we continue to think that as we exit Q will be rewarded and hopefully our share price continues to trade closer to and hopefully above and Avi there is still pretty a pretty significant disconnect between where we trade and where assets are trading in the private market today.
Okay and then.
Re leasing spreads in the second quarter this spread on renewals and options with lighter at 4%.
Carticel trailing 12 months, which has been over 6% did it have anything to do with the mix of option exercises in the quarter or what sort of drove that.
Yes, Christy this is Dave Jamieson Great question. This quarter actually we had the highest number of small shop renewals on when you compare this quarter versus the trailing eight which had a.
Which in turn has had an impact on the overall spreads itself. The reason for that is in small shops typically are at slightly shorter in term. They do have annual increases. So they typically last question comes from Craig Schmidt with Bank of America Merrill Lynch.
Thank you.
Our last quarter, you had mentioned that you were on track to deliver 16 to 18 million incremental NOI I Wonder are you.
Holding or.
Increased or decreased.
That is correct, Greg we still are on track to deliver $16 million to $18 million of incremental NOI were comfortable with that range and as you've seen our projects. Many of you have been on site on a few we continue to be.
Due to the aspect that the signature series pipeline that is really delivering.
And then just on the buy online pickup in store how.
How many retailers can be involved in that in terms of one shopping center.
I think it can be significant I mean, we're in the early days of the retailers implementing at some of the larger.
The first movers are adapting quicker.
But when you look at what's happening with E tailers coming and partnering with physical brick and mortar retailers. I think there is a lot that can happen where the last mile distribution hub becomes the shopping center and when you. When you think about all the different types of retailers that sit in the shopping center today.
It really lends itself for being that that most convenient point of either pick up or delivery.
So we're watching it closely and we continue to think that Thats whats going to work in the long term for retail and have been reinvesting in those assets.
Thank you.
Thank you and the next question comes from Jeremy Metz with Bank of America, Movil Mpas, Panama, rather on all this.
Hey, guys.
You've obviously had a good start to the year you are running ahead of your initial expectations on the core. So you raised the same story here for the second straight quarter. I was just wondering if you could comment on some of the drivers between hitting that high and low end.
And in that what are you baking in for dress barn in terms of the timing there.
What sort of impact that's going to happen.
So in terms of in terms of dress bond is really nothing thats baked in into the 2019 number.
On their plan right now is to operate the stores and pay rent through the end of the year.
So there is no real impact for that.
In terms of the highs and lows again, we are continuing to watch and be careful about what's happening in the retail environment.
So you know again watching where with the impact of tenants and any further fallout within the low end of the range again, the the lease up into continued rent commencements coming online helps us towards the higher end of that range.
All right and I guess I just wanted to go back to dress barn.
When they do start naming what sort of impact do you think and what is the mark to market and what would be the Ambac hi, guys. If they stop at year end I mean.
Impactful would those be to next year.
So on an annualized basis, the dressbarn impact on Hbr is about 16 basis points. It would have an impact on on small shop occupancy. It can be up to 42 basis points is that something that we want to be mindful of.
That said you know what we're seeing is great opportunities already with the Backfills and so what this does is it always gives us an opportunity to pre lease these boxes prior to us recapturing them and knowing that this has been an event that's been forthcoming for some time, we have and.
Fairly substantial runway in terms of managing managing the fallout and pre leasing so I think when we come towards the end of the year and into 2020, we should be in pretty good shape with new leases in place Jeremy its 13 locations 16 basis points. So we feel pretty comfortable with being able to pre lease some of those before the end of the year and hit the ground running.
Thanks.
Thank you and the next question comes from Gerrick Johnson with Deutsche Bank.
Good morning, everyone. Thank you.
Similarly can we get an update on forever 21, and what what.
I was going on there and the size of the boxes that you have in general.
Yes, sure Forever 21, we have very limited impact explosion Forever 21, we went out in California, and then we do have a lease that we did sign with forever 21 at the end point back in 2017.
What we're seeing thus far is actually what we have in place, especially want to Danny is.
The position that they probably want to be in going forward smaller inbox size in the open air environment lifestyle environment, which could be advantageous.
As it relates to that data in our conversations with them. They are actually fully under construction and anticipate opening in the back half of this year.
So I, so nothing's changed there the one we haven't out in California.
His line is actually expiring and with a significant below market opportunity. So we were actually very enthusiastic about getting that one back when that lease rolls.
All right. Thank you and how do you guys think about balancing FFO payout ratio really with the attractive value creation initiatives in front of you specifically phase I think when you look at our opportunities going forward you're right. There there are numerous and what weve elected to do for for our shareholders is to a title as many projects as possible I think that really start the process of unlocking the potential of the asset and then we look at each asset individually about how do we funded and how do we look at the economics, the supply and demand and where our cost of capital sits before we hit the go button.
As I mentioned in my remarks, we are taking the approach of using ground leases for a number of our multifamily opportunities that allows us to get the benefit of having.
Residents live on site, we get a cap rate compression of adding a mixed use components of the entire analyzed stream and on and we're going to continue to monitor where we trade versus our Navy and we do have funding sources from our dispositions that are matching up with our needs. So right now we feel like we have a very comfortable position, we have been talking to our partners about opportunities and mixed use and there is there is no lack of capital for multifamily development right. Now so that is something that we've seen and we continue to monitor it and see what the best use of our funds as well as matching up.
With with the right partners.
Thank you and the next question comes from Rich Hill with Morgan Stanley .
Hey, good morning, guys I wanted to come back to maybe the 2020 vision.
And specifically the ramp for the new properties that are coming online you've made some really good progress in headline operating metrics.
Moving higher.
But but FFO growth is still is still negative.
I recognize a lot of that has to do with property sales and development, but as you think about that ramp could you maybe help us think about that trajectory over the next 12, 18 24 months or so.
I guess first take a step back and your comment about FFO growth. When you look at the accounting change and the impact it's had to this year versus last year. If you back that out actually we're actually showing growth. So that will take that point and address it on the on the developments and Redevelopments that are coming online. We do believe that thats really whats driving the AFFO growth for us in a year, where we are dealing with the $1 billion of dilution from last year and so when you combine that come with the combination of the core portfolio producing the results that we've done so far this year and the developments and redevelopments coming online that $16 million to $18 million of incremental NOI. This year and then 2020, we have about another 15 million coming online.
We feel like we're in really good shape, because it's very visible growth and that's really what.
Puts our EBITDA and our FFO on a growth path that we feel very comfortable with and that really brings down our leverage and improves our AFFO coverage ratio.
Got it that's helpful and just one more question if I if I if I may.
On Puerto Rico, I don't think anyone's touched upon that in a while any any updates there and what are you seeing in the financing market that the CMBS market seems too wide open for ships in the us, but but any loosening credit for Puerto Rican assets.
Yes, well first off in terms of the operations of our Puerto Rico portfolio I could tell you that it's been well above expectations and we continue to see occupancy actually increasing and the performance of our tenants are doing very well so the Puerto Rican centers are doing fairly well.
To your point there have not been any.
Real transaction activity that we've seen we have stayed in touch with the market and lenders while our assets are unencumbered. We do believe that there is financing available for assets in Puerto Rico, we have heard of equity sources that have been looking in Puerto Rico.
But we're very comfortable with our portfolio with where we sit today. So we'll continue to manage that the best we can and continue to track the market if any.
Activity starts to start up there.
Got it thanks very much for the transparency on both those questions.
Got it. Thank you and the next question comes from Samir Khanal with Evercore ISI.
Hey, good morning, guys.
I guess corner, if you look at Albertsons today, and you look at their metrics and then the reported earnings I mean financial or better.
Profitability it seems to be trending in the right direction net debt to EBITDA is coming down a little bit I mean, I guess I just want to kind of get your view on.
Kind of a gross or maybe over the last six months.
What your view on the on the grocer is.
We're very pleased with Albertsons.
Results. So when you look at their performance and the positive same store sales they really set out some significant milestones that hit this year in the pit all the ones that they've laid out where do you want to comment a little bit on the bonds and what we'd sure I mean, if the store they announced their quarterly earnings yesterday and substance to that a couple of the.
Bond.
Analysts have upgraded their bonds.
Showing how dakota leverage coming down.
And if you start from their press release at six quarters of same site.
Growth in their stores EBITDA was down over two years up by $2.5 billion. So doing everything in the right direction to put us in that situation.
To go forward with an IPO at the right time I mean, we are CEO just started in may.
April and has been very well received by Wall Street and.
Management, So I think we're putting all the pieces in place.
Two.
Good healthy equity markets to execute IPO hopefully.
Near term versus longer term.
Okay. Thanks, guys Thats it for me.
Thank you and the next question comes from Caitlin Burrows with Goldman Sachs.
Hi, Good morning, I was just wondering in terms of the occupancy Thats pretty high now at 96.2% on a pro rata basis. I was just wondering going into 2020 do you think that that ends up being a headwind or do you think that it is possible.
To increase it further as we move forward.
Sure what we see right now on our on our box activity going forward and into the back half of this year is very encouraging. So I think we could continue to see the potentially the lease economic occupancy actually widen a little bit further.
In which case, so that will create new opportunities for rent flows in the back half at 20, and then going into 21.
As it relates to this year in particular for the second half of the year for those that are that are forecasted to actually start rent flowing on an annualized basis has about $16 million of cash flow.
And for the back half needs of this year, we expect about $4 million of that to hit 19 alone. So we feel very good about where we stand today. This still clearly some upside in the small shop occupancy I mean, where we're at 98.5%. We have leased up that's got to get done on the Payless is that better vacated and there's more with the balances of the Payless is are going to vacate.
In the third quarter.
Yes, so on the Payless. The one thing, we we will be anticipating and where we will be facing in Q3 is about 10 basis point impact on the remaining 19 Payless is to vacate this quarter.
Obviously again weve been prepared for that so we're in the process of Backfilling and pre leasing those spaces themselves. So the small shop side, you'll continue to see a bit of an ebb and flow, but to glenn's point theres upside dress barn, as we already mentioned can be another potential headwind for trying but we have a fairly long runway right now to address that so all in all we feel very good about the environment that we're in the quality of our centers are really shining through as it relates to this activity.
This is this is an incredible demand environment that we are with that we're in right now when you look at.
The the the vacancies that we currently have in our portfolio and the activity that we have on them, it's really encouraging to see the different sectors really there's a there's a dynamic across multiple sectors. It's not concentrated in just one retail sector, which is exciting.
Got it on night, great demand side I guess.
Just back to some of the topics on watch list tenants some of the ones that we've seen in the news that could be closing stores I don't know if Dan kimco portfolio, though in terms of closures would be like that that can be on pier One party city I guess within the kimco portfolio do you expect headwinds from those tenants.
Each of those have their own story that we watch closely and we stress test our.
Our same site and our guidance in our in our budgets constantly.
I understand what the total impact could be so whenever we go through our budget process, we're constantly stressed assets and what's worse case whats best case.
The way, we treat easier is truly a case by case basis on lease by lease.
Really a supply demand and within that it is something that we have to constantly monitor and be proactive about but we stay very close to the retailers very closely expanding retailers.
To make sure that we manage it appropriately I think one of the examples I always point to is the Sears Kmart.
Experience that we that we saw we only got two locations back.
So we only we have 11 remaining.
And the reason for that is because we have great locations with below market leases. So even when a tenant goes through a restructuring they typically want to hold on to the to the locations, but give them the best opportunity for sales growth and so we've been seeing that the stickiness of our leases is actually pretty strong.
Got it thanks.
Thank you and the next question comes from Ki bin Kim with Suntrust.
Thanks, Good morning.
So when you look at the lease spread page in your supplemental you guys categorize about 20% of your leases as non comparable.
Just curious what makes those leases not comparable and I ask that because if I look at the T.I. usage as a percent of rental value, which is the way we always look at it.
It was 16% for what you call comparable but 26% for what you call. It non comparable so just trying to understand that bucket a little better.
Sure the difference between comparable and non comparable is the timing when the prior tenant vacated so we have a 16 month window between non comparable and comparable for example at the least went out six months ago, and you backfill that lease within that window it was ending comparable.
On the other side of it and went out 18 to 24 months ago, and then we just backfill that today that would be deemed non comparable.
Okay and can you keep in mind is those those non comparable leases obviously have been vacant for an extended period of time. So it's nice to see some significant activity and some of those boxes that have been sitting vacant for an extended period.
Right and I don't want to lose sight of that whether the lease breaks a little weaker than what's comparable or not you're getting at least.
But just for some color what does the leasing spread look like.
For the non comparable bucket.
It varies I mean, it's such a case by case basis. So it's really hard the reason why we have comparable leases is because it's more of an apples to apples comparison about a true.
Newly spread.
Renewal spread versus first voted on travelers.
All right and just last question.
How often is that the case, where tenants are willing to renew.
Maybe at higher rents, but coming back to you and saying you know what we don't need 30000 square feet, we only 20.
How often is that happening.
Downsizing has not been something we have been seeing across the portfolio.
When you look back at some of the retailers that have gone through a downsizing.
You look at what's best buy did back in the day trying to take their box from 45000 square feet down at 30000 square feet and then they quickly realized that the disruption that occurs inside the box doesn't justify the cost as well as the repositioning.
And they don't see any pickup in sales in terms of productivity. So a lot of what we've seen actually is retailers that theoretically want to downsize.
Have come back and said you know what we're better off at our existing box. So 45000 square feet actually works and now best buy even tells us that since they went with their store within a store concept. They have over 90000 square feet of demand from smaller retailers to come within their stores. So we really haven't seen any significant downsizing across the portfolio I think the only other item I would add as well is that you are seeing other retailers come out with with different.
Formats. So in terms of floor plates, the smaller format to a mid sized format to accommodate the size of the boxes. So they themselves have become very creative and adapting to the current environment is do they still want the best locations in the best real estate and so they understand at that point that they have to make those combinations as well.
Alright, thank you.
Thank you and the next question comes from Wes Golladay with RBC capital.
Hi, guys can you update us on the development yields for the Pentagon Center and making project.
So Pentagon obviously is in early days of lease up but we have raised threats three times. Since we started the process and were obviously were very excited about the absorption rate.
Lincoln has also been strong in terms of absorption you see the occupancy on the supplemental tick up pretty significantly there, but the yields that we projected have been have been holding so it's one that we continue to monitor as the lease up continues yes. So on our on our mixed use portfolio within multifamily were typically targeting around six to six and half yield on those two projects and we feel good about that.
Okay and then when you look at the tenants that are signing leases right now throughout the portfolio is there any region that stands out as being stronger than the other and any categories being stronger or weaker as more specifically looking at the home furnishing category has that slowed down with that overall housing market in U.S.
No I across the country demand is extremely high I mean, we've seen contributions from all four of our regions really a top levels and it really does vary in terms of users Conor mentioned earlier, it's fairly dynamic out there right. Now. So you are seeing grocery expansion youre seeing home furnishing and expansion home improvement expansion fitness.
So a lot of the categories that we have been discussing before continue.
Continue to ramp and look for the best real estate, obviously experience experience Joel.
Continues to be a main focus.
And whether thats in a target box or a brand new etailers thats coming into to brick and mortar everyone's really focused on how to attract that customer make they're experiencing.
All right that's it for me thank you.
Thank you and the next question comes from Alexander Goldfarb with Sandler O'neill.
Hey, good morning out there.
So just two questions.
First just as you guys look at the environment, both store closings store openings.
Your gap between signed but not yet opened has been rather steady it's increased a bit but it's it hasn't narrowed and obviously there have been a lot of headlines about store closings, but it sounds like less in real time. So as you guys are thinking about this year into next do you feel that you're you're forecasting. Your modeling is it is better than it was call. It two years ago. When we were in the in the grips of a lot of store closings. The same better just trying to get a sense for how comfortable you guys feel in forecasting where you'll be.
Just given that the gap between signed but not yet open really hasn't narrowed and that they are still our retailer announcements out there.
Yes, I think when you look back at that range, that's been consistent because weve leased up really all of our sports authority and toys are us boxes, and Hh Gregg boxes that Weve got back. So there is a reason why it's been elevated as we have been significant we've done some significant leasing to backfill all those boxes to put us at all time highs and occupancy going forward, that's really something that we continue to monitor you know, it's a very fluid environment. We feel good about our portfolio. We feel good about where we're positioned we feel good about the debt maturity profile and the liquidity position, we have but it's really going to be something we monitor going forward is as youve heard from a number of of the retailers that they are trying to transition to the new world of retail and some will be able to and some will not be able to but we feel like portfolio is positioned to to outperform.
Okay and then the second question is some comments earlier on on pricing for assets, including portfolio pricing coming back just maybe a little bit more color.
Previously the comments had been.
Smaller maybe under 30 million one off assets were always very strong larger assets. Maybe you is over 50 or over $80 million were tougher portfolios were obviously tougher.
Okay are the bigger one off assets in the portfolio is coming back in large scale or is it just that we've seen a few and those few have had very specific qualities why they've traded so maybe just a little bit more color there.
Yes, I still think the sweet spot for the majority of the private investor is in that $25 million to $30 million range, but it's been encouraging to see.
A number of examples of 50, plus 70 plus million dollars single assets that have had strong demand I think that part of it is.
Specific to the asset and the retailer sales and the dynamics of what's happening in that market.
A big part of it continues to be the availability of financing and with rates, even lower than where we started the year.
It gives a very nice spread for for the Levered buyer. So I think theres, a very strong comfort level.
In the open air space, and we've seen the investors willing to pay for that.
Portfolios as I mentioned this was sort of the first sizeable portfolio, we've seen in a little bit of time.
But we continue to hear about capital formation is looking for more sizable portfolios of retail. So we'll have to continue to monitor the market and see how that goes.
Thank you.
Thank you and next question comes from Greg Mckinley with Scotia Bank.
Hey, good morning, everyone.
Counter for the second time this year that you've raised same store NOI guidance, but maintain AFFO guidance. So whats keeping you from increasing company expectations on that front, considering the outperformance in same store growth.
Yes, Thats a good point I mean, we we have raised same site NOI guidance two times. This year as the environment has improved we originally anticipated more fallout and we've seen experienced more demand. So we continue to monitor that.
But if you look at the math in terms of how much the same site impacts flow really hasn't changed that much and so we still feel very comfortable with our AFFO guidance range for the year, we are going to be monitoring that as we go into the second half of the year and if the the dynamics continue to be on the path. We're on we feel very comfortable with the range we have.
Okay. Thanks, then Ross on dispositions I know you mentioned, you're comfortable with the range, but I think the original goal is to kind of front end loading the dispositions. So I'm curious the top end is still reasonable did anything change or buyers moving maybe a bit more slowly I know, it's still active market are you switching up assets. So just any details would be helpful. There.
Yes sure no we're very comfortable in the in the higher end of that range.
Given the size of the volume that we're doing this year, which is significantly more modest than years past a couple of deals timing delays can change sort of the front loading versus the back loading so.
We're in very good shape with way were through the first half of the year or one or two assets that we thought could close in June that would have been part of that first half that got pushed 30 or 45 days, but are still on track to close here at the end of this month and into the beginning of August we have a couple of closings in the next few weeks. So we feel very comfortable with that range and again at the higher end of that range.
So no no material changes in any activity or the types of assets, we're selling it really just comes down to timing.
Okay, and just just to reiterate so we're kind of thinking that you'd have probably a big Q3 here on dispositions and high end is most comfortable for the full year.
I think Q3 and Q4 should should both be very healthy to get us to the upper end of that range.
All right great. Thank you so much.
Got it.
Thank you and the next question comes from Michael Mueller with JP Morgan.
I apologize if I missed this but it looks like you have a few hundred million dollars of secured debt maturing over the next few years, where the rates are north of 5%.
And even some GB data as well and I was wondering can any of that be refinanced early just given where interest rates are.
It's Glenn Hi, Hi, Mike.
The short answer is we have to pay a lot of prepayment penalties to go along with that and a lot of that came from acquisitions. So there you have these above and below market debt components that go do it. So there's no real advantage to paying the prepayment penalties today does not really a lot of debt maturing. We only have 100 million of mortgage debt that matures next year on the consolidated balance sheet and a lot of the debt. That's in the joint ventures for next year a good portion of it is in our Q portfolio and there is a credit facility thats in place to take those out and actually unencumber those assets.
Got it okay that was it thank you.
Thank you and then next question comes from how does on juice with Mizuho.
Hey, good morning.
So first question to follow up on Pentagon Center, just curious on the incremental opportunity there how many more apartments could you potentially build if you get your targeted additional entitlements and it might be a bit early but what type of timing or returned anything incremental can you share with us.
Sure were going through currently the permitting process for the second tower should be on the backside of Pentagon that right now to be approximately 250 units residential units. It out here in near term opportunity that we could look to activate now we have to go through the permitting and the bid process in which case and we'll we'll assess.
Well the value potential is there obviously, what's been so encouraging about the witmer, which is the first tower at Pentagon.
Although the announcement from Amazon has occurred to date, there has been no Amazon employees actually occupying our building. So Conor mentioned, we're at 46%.
As of the end of <unk>.
At the end in June , but thats really not taking into consideration any future influence or impact on the demand from Amazon employees. So now when you look out two three years by by the second tower, if we push that for obviously that will be a time in which Amazon starting to take some effect into the market. So we can feel very good about about that potential just to just to be clear, we have 2 million square feet of additional entitlements already secured at the site and so thats for another tower of apartments, and then a hotel tower and then an office tower and so the near term opportunity is to activate a parking lot for the second tower residential.
Got it got it that's helpful. Thanks, and one more and kind of for you I guess I'm more curious on.
Your view on M&A in the shopping center space today, given the improving your stock and your multiple and your long term portfolio goals I'm. Just curious if there is a scenario in which kimco could be a player and maybe what are some of the more important guardrails requirement that you would require to to be involved.
Hey, Tim go has been a consolidator, we bought five public companies and we're obviously very large I think when you look at our stock today, we still trade at a meaningful discount the NPV and so when you look at the the milestones that we intend to hit to help our stock I mean, we still have a lot of work to do and we have a lot of execution to take care of.
And if we get to a point, where our stock comes back and we have a cost of capital less advantageous we would look at further improving our 2020 vision, which is really focusing on our core markets understanding where we have boots on the ground and efficiencies of scale I think the last thing you would see US do is run back into the markets that we have taken the last few years to exit and so we're going to be very disciplined and we recognize that we've got a lot of work to do but what we've been we've been executing and continue to do so going forward.
Thank you.
Thank you and the next question comes from Linda Tsai with Barclays.
Hi, how much the credit of 100 bits credit loss reserve for 2019 has been used on a year to date basis, and how does that compare to the same time last year.
So so far weve use 30 basis points of the 100 basis points through the first six months.
And we're a little bit better than where we were last year.
Thanks, and then move the discussion around credit loss is focused on national chains right sizing their store leases how is credit loss trend in for the mom and Pops over the last six to 12 months.
The when you look at the small shop occupancy you know when you left out the impact of what Payless was we're pretty much on trying to where we thought we'd be in holding a small shop occupancy steady or slightly increasing so I think thats is evident to the strength of the the mom and pop retailers right now obviously the franchise model over the last.
Eight years out of the recession has created a really good opportunity for mom and pop retailers to taking existing base business and expand it and really focused on day to day operations.
So I think thats, that's proven itself out well no I think it's a reflection of the strength of the consumer I mean, when you look at where we sit today how strong the consumer is the mom and Pops have been we're at we're sitting at near all time highs for small shop occupancy and the mom and pop Rick has been a big player in the.
Thanks for that last one how are you weighing the decision to allocate capital towards redevelopment versus buybacks given your comment that the stock continues to trade at a discount.
I think when we look at our cost of capital today and the best use of funds. We continue to think that redevelopment is the best use today now obviously, we bought back stock previously when we were trading at a meaningful discount to any b, but we will continue to monitor where we trade and continue to look at where our dispositions are trading and we could match fund accordingly, So we feel pretty we feel pretty good about where we sit today.
Thanks.
Thank you and the next question comes from Steve Sakwa with Evercore ISI.
Thanks, I'm just curious how you guys are sort of looking at or thinking about the Kroger Okada relationship I know they've opened up a few facilities.
In the U.S. and I'm just curious if you have any centers that are nearby if theres been any impact and how you sort of think about that relationship longer term.
We are monitoring it I think it's something that continues to evolve along with click and collect that as sort of the next wave of I think pilots of how they are going to be delivering.
More effectively in dense markets.
Across the country right now what we see in our grocery portfolio is a lot of grocers, either typically use instacart or some of them have brought it in house to boost their their loyalty program.
We continue to think that the store is actually.
As I mentioned in my earlier comments on what target has seen a more effective and more cost efficient structure.
But again, we're monitoring that closely to see what changes and how that relationship evolves.
Okay. Thanks.
Thank you and then next question comes from Chris Lucas with capital One Securities.
Hey, good morning, everybody just a detailed question on the witmer when do you.
I apologize if I missed this when do you expect move ins to begin and when do you go from capitalizing to expensing on that project.
Sorry, I missed the first part of his movies or began.
[laughter] movements have already started yes, yes. It move in started July one once we got the CCOH. So that allowed people to to start moving in and they'll continue obviously now through through the end of the year really at this point, what an interesting problem that we have.
Is due to the velocity of leasing at Pentagon, It's actually accommodating all the move in requirements day in and day out it becomes very very busy and very active but it's a good problem to have so we are willing to take on that challenge.
We as they've already started right the expensing versus capitalization will happen in the next quarter or so.
Okay, and then I guess just in terms of how you're thinking about Conor you mentioned that the rents have been I guess increased three times as you thought about sort of performing the outcome, there where our rents today as you said and then as it relates to sort of stabilization. What are you guys thinking in terms of when that occurs.
Sure, Yes on the rent side were typically around a blended average about $3.24 on the units as it relates to stabilization, we'd always forecasted 18 to 24 months. So we're going to maintain that front for now obviously, we're ahead of plan.
We are in a high season of leasing so we anticipated to have a slightly higher volume today that would happen sort of late fall into winter. So before we make any adjustments we want it and want to maintain our budget and our plan and we'll see how we trend through the balance of the year I will add that our.
Our apartment manager there who manages thousands of units has not seen demand like this before and is it is his experience.
Thank you appreciate that.
Thank you.
And as there are no more questions at the present time I would like to return the forward to David just thinking for any closing comments.
Thank you for part thank you for participating on our call today I'm available the rest of the day to answer any follow up questions. You may have enjoy the rest of the day.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.