Kimco Realty Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2022

Key Takeaways

  • Kimco completed the Weingarten merger, boosting scale, geographic clustering, and operational platform strength.
  • Q1 leasing hit record levels with 475 renewals (3.9 M sf at a 6.4% spread) and 178 new deals (719 K sf at an 18.6% spread), driving occupancy up to 94.7%.
  • Same-site NOI grew 8.9% year-over-year and NAREIT FFO rose to $0.39 per share, prompting an increase in full-year FFO guidance and a quarterly dividend boost to $0.20.
  • Liquidity stands at $2.4B with improved net debt/EBITDA at 6.4x, including a new $600M 10-year bond at 3.2% and early repayment of $500M bonds maturing in 2022.
  • Despite headwinds from inflation, supply-chain constraints, geopolitical tensions, and China lockdowns, grocery-anchored centers saw traffic at 108.9% of last year’s levels.
AI Generated. May Contain Errors.
Earnings Conference Call
Kimco Realty Q1 2022
00:00 / 00:00

There are 17 speakers on the call.

Operator

Greetings, and welcome to the Kimco Realty Corporation's First Quarter 2022 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded and will be limited to It is now my pleasure to introduce your host, Mr. David Buschnicki, Senior Vice President of Investor Relations and strategy.

Operator

Thank you, Mr. Bushnicki. You may begin.

Speaker 1

Good morning and thank you for joining Kimco's quarterly earnings call. The Kimco management team participating on the call today include Conor Flynn, Kimco's CEO Ross Cooper, President and Chief Investment Officer Glenn Cohen, our CFO Dave Jamieson, Kimco's Chief Operating Officer as well as other members of Our executive team are also available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward looking, And it is important to note that the company's actual results could differ materially from those projected in such forward looking statements due to a variety of risks, uncertainties and other factors. 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 Kimco's operating results.

Speaker 1

Reconciliations of these non GAAP financial measures can be found in the Investor Relations area of our website. Also, in the event our call were to incur technical difficulties, we'll try to resolve as quickly as possible. And if the need arises, We'll post additional information to our Investor Relations website. And with that, I'll turn the call over to Conor.

Speaker 2

Good morning, and thanks for joining us today. I'm going to lead off the call with a brief review of the current retail environment, highlight a few of our Q1 accomplishments and provide an update on our overall strategy. Ross will describe the transaction market and the high demand for our OpenAir and mixed use products. And as usual, Glen will cover our financial metrics and provide updated guidance for the year ahead. 2022 is off to a very good start.

Speaker 2

The integration of the Weingarten merger is now complete. And as anticipated, Our scale, geographic clustering and operational platform is stronger than ever. This success is occurring at the same time that retailers are taking a fresh look at the real estate portfolios and concluding that the physical store has proven to be the linchpin of retail. To put that in perspective, it wasn't long ago when many people thought that the physical store was on the verge of extinction and that e commerce was the be all end all for retail. Now retailers are looking at the physical store through a new lens, a lens that is focused on optimizing the store for retail, e commerce and distribution.

Speaker 2

Tenants are revising their capital spending budgets to address the omni channel revolution and e commerce platforms. They are readily investing capital When retailers evaluate their real estate, they no longer separate their warehouse and distribution needs from their sales requirements. Today, leading retailers are taking a holistic approach to determine the best locations to ultimately serve their customers. Indeed, this integrative approach is the dominant recurring theme during our portfolio reviews with retailers and is creating more demand for optimal location. We are seeing renewal and new deal demand for well located space that is not only suitable for generating in store sales, but is also conducive to last mile distribution and fulfillment.

Speaker 2

Target Stores is a bellwether for this new approach, with more than 95% of their total sales, physical and online being fulfilled through their store base. The result is a tremendous halo and value add to their existing and growing store fleet. This trend of increased capital spending by retailer and the renewed focus on and demand for quality locations is good news for Kimco. Higher retention, lack of new supply, quality real estate and a well coordinated team effort are strengthening pricing power and accelerating the speed of recovery throughout our portfolio. The result is higher cash flow, greater leasing velocity, improved net effective rent and growth in recurring FFO.

Speaker 2

Our incredible team produced a record 475 renewals, totaling 3,900,000 square feet and the renewal and option spreads of 6.4% continue to underscore the supply and demand dynamic I just described. Specifically, new first quarter leasing was strong, producing 178 new deals totaling 719,000 square feet, and our pricing power is reflected by a solid new leasing spread of 18.6%. Retention levels remain high, With lack of new supply, putting more value on existing stores and resulting in more remodels and lease extensions with minimal capital required from Kimco. It is worth noting that positive net absorption in the Q1 historically has been a rarity and yet our superb leasing team generated a 30 basis point increase in our pro rata occupancy, which now stands at 94.7%. This is our highest first quarter Sequential occupancy gain in over 10 years.

Speaker 2

Year over year occupancy is up 120 basis points. Strategically, we continue to focus on enhancing our already strong Open Air grocery anchored and mixed use portfolio in our top markets. Ross and his team are constantly analyzing new potential acquisitions as we look for the best fit for our portfolio. We've also made excellent progress on entitlements. In the Q1, we entitled 1300 apartment units in 3 of our core markets Denver, Fort Lauderdale and Washington DC.

Speaker 2

Our mixed use assets are benefiting from the dual recovery in both the apartment and retail sectors. All this activity gives The war in Ukraine, the lockdowns in China, the rise in COVID numbers and the reemergence of mask mandates in certain areas present real challenges. The consumer is being stretched by a record inflationary environment at the gas pump and at the grocery store. Despite these headwinds, traffic continues to flow to our grocery anchored neighborhood and necessity based centers. Traffic in the Q1 of 2022 was 108.9% relative to the same period in 2021 as the value provided by our essential based retailers remains as important as ever.

Speaker 2

In closing, I want to thank our entire organization. They respond to every challenge, Work tirelessly and maintain our do the right thing culture. Their collective drive has enabled us to push our recovery faster than we anticipated and execute our strategy with precision. It feels like we are just getting started, which makes it so exciting to be a part of this great team. With that, I'll turn it over to Ross.

Speaker 3

Thank you, Conor, and good morning. It has been an exciting start to the year. And while our first Our transaction activity remains very selective and focused on a combination of third party acquisitions, structured investments and partnership buyouts. Thus far, almost 4 months into the year, we have deal flow for all three categories in our acquisitions pipeline. In terms of Q1 transaction activity, we acquired a couple of adjacent land parcels highlighted by a junior anchor box located within our Columbia Crossing Center in Columbia, Maryland.

Speaker 3

We expect the pace and frequency of closings to ramp up as we move through the balance of the year and we are eager to capitalize on the external growth we can deliver as these transactions are completed. As we indicated last quarter, we have taken the opportunity to prune several joint venture assets that we felt had maximized value with limited future growth. We sold 3 shopping centers from joint ventures for a gross value of $81,900,000 and Kim share of $17,500,000 In the Q2, we expect to complete additional JV dispositions from both legacy Kimco and recent Weingarten Partnerships. We are at a very interesting time in the marketplace today. Even with the recent rise in interest rates, We have not yet seen any impact on pricing or demand for the product.

Speaker 3

Equity capital which is creating further competition for quality open air centers. Sub-five percent cap rates for the best of the best is now the norm and we are seeing these comps throughout the country. Portfolios are back to commanding a premium if the composition of the assets Checks the boxes for institutional investors. Bidding wars are commonplace for not only grocery anchored assets, but for the better quality power and lifestyle assets as well. This comes at a point in time where rates are rising rather quickly and lenders are taking a closer look at quality of sponsorship and disciplined loan to values.

Speaker 3

It is worth noting that there is a strong advantage in the marketplace today for the all cash buyer, which gives the balance sheet and liquidity position like Kimco's a major benefit. We intend on utilizing this privileged position wisely and protecting it while selectively adding unique core properties and structured investments into the portfolio. Another Kimco differentiator in this market is creativity and structuring, specifically the ability to offer a tax deferred structure. For certain tax sensitive owners of property, this is the best way to optimize net value for a seller in an uncertain regulatory environment. Given the various paths we have to prudently deploy capital, we are confident in our ability to unlock accretive investment opportunities for the company in all three phases of our external growth strategy.

Speaker 3

And now to Glenn for the financial results for the quarter.

Speaker 4

Thanks, Ross, and good morning. We are encouraged by our strong Q1 results driven by increased occupancy, strong leasing volume and continued positive leasing spreads. In addition, our same site NOI growth benefited from higher collection levels and lower credit loss as compared to the same period last year. NAREIT FFO was $240,600,000 or $0.39 per diluted share and includes a $7,200,000 charge or $0.01 per diluted share for the early extinguishment of our $500,000,000 bond which was scheduled to mature in November of this year. This compares favorably to our reported Q1 20 NAREIT FFO of $144,300,000 or $0.33 per share.

Speaker 4

The increase in FFO was primarily driven by higher consolidated NOI of $104,700,000 of which the Weingarten acquisition contributed 88 $600,000 NOI also benefited from improvements in credit loss and growth from our rent commencements at our Signature Series projects. FFO from our joint ventures also increased by $14,400,000 comprised of $8,600,000 from the Weingarten acquisition and $5,800,000 from our other joint ventures. These increases were offset by debt prepayment charges of $7,200,000 and higher interest expense of $9,300,000 mostly attributable to the $1,800,000,000 of debt assumed in connection with the Weingarten acquisition. Also, our G and A expense was higher by $5,500,000 associated with the increased size of the operating portfolio and new associates we brought on from Weingarten. However, our G and A as a percentage of our revenues significantly improved by approximately 100 basis points, further showcasing the cost saving synergies from the Weingarten acquisition.

Speaker 4

Our operating portfolio delivered robust same site NOI growth of 8.9% over the same quarter last year. The growth was comprised of 3.9% from increased minimum rents and 90 basis points from increased CAM and tax recoveries resulting from higher occupancy. Lower abatements contributed another 2.5% and lower credit loss including collections from cash basis tenants contributed 80 basis points. As we look forward, our same site NOI for the next three quarters will be more challenging given the prior year comp range of 12.1% to 16.7%, driven by the large reversals in credit loss realized in 2021. Our guidance for the remainder of 2022 doesn't anticipate additional reversals of bad debt or collections from cash basis tenants for prior period rents.

Speaker 4

It is worth noting that today only 5.2% of our ABR comes from cash basis tenants, which is essentially back to pre pandemic levels. All that said, we expect same site NOI growth for the full year 2022 to be positive. Our balance sheet remains strong with liquidity of approximately $2,400,000,000 comprised of $370,000,000 in cash and full availability of our $2,000,000,000 revolving credit facility. I'll look through net debt to EBITDA, which includes our Pro rata share of joint venture debt and NOI and our perpetual preferred issuances has improved to 6.4 times. This is the best level achieved since we began disclosing the metric over 10 years ago and does not include the potential benefit of monetizing our Albertsons investment, which had a current market value of over $1,300,000,000 as of March 31.

Speaker 4

During the Q1, We opportunistically issued a new $600,000,000 10 year unsecured bond at a coupon of 3.2% and use the bulk of the proceeds to repay early $500,000,000 of 3.4 percent bonds scheduled to mature later in the year. Of note, the 10 year treasury has increased over 80 basis points since this issuance. Also as of today, we have repaid all our Mortgage debt due in 2022 totaling $115,000,000 Our only remaining consolidated maturity for 2022 is a $299,400,000 3.375 percent note due in October. We also have 2 perpetual preferred issuances totaling $489,500,000 that become callable in the year with a weighted average coupon of 5.2%. This should present an opportunity to further reduce our fixed charge costs.

Speaker 4

Subsequent to quarter end, we renewed and increased the unsecured credit facility for our CARE joint venture with the New York State Common Retirement Fund. This new unsecured facility has a total term of 5 years and has been upsized to 425,000,000 comprised of a $275,000,000 fully drawn term loan and a $150,000,000 revolving credit facility with 0 outstanding. The pricing grid includes a sustainability component, which can reduce the borrowing spread by up to 2 basis points based on reductions in greenhouse gas emissions from the Kyre portfolio. Turning to guidance. Based on our strong first quarter results, We are increasing our 2022 NAREIT FFO per share guidance range to $1.50 to 1 0.5 from the previous range of $1.46 to $1.50 The increased range is based on the following assumptions.

Speaker 4

Positive same site NOI growth for the full year, approximately $13,000,000 of credit loss for the remainder of the year, No additional charges associated with debt prepayment or the redemption of the callable preferred issuances that are standing as well as no monetization of our Albertsons investments. As a result of our strong Q1 results and the increased guidance range, Our Board of Directors has raised the quarterly cash dividend to $0.20 per common share from the previous level of $0.19 Even with this increase, we still expect to generate over $200,000,000 of free cash flow after the payment of dividends and maintain a dividend distribution level, which is in line with the estimated taxable income. We truly appreciate and thank the entire

Operator

Thank you. We will now be conducting a question and answer Thank you. Our first question is from Craig Schmidt with Bank of America. Please proceed with your question.

Speaker 5

Great. Thank you. I just wondered, are there any anticipated changes or enhancements to your curbside pickup Installation or both procedures?

Speaker 6

Hey, Greg. Dave Jamieson. Great question. It's something that we are Actively trying to better understand now and explore what the curbside 2.0 version will be. As you know, we have curbside at all of our properties where it's warranted and we're expanding that into the Weingarten sites.

Speaker 6

But it is interesting as we Building the conversation with them and seeing what their needs are and how their needs are changing and then we will adjust accordingly. But we're very much in that learning phase right now to understand What's next to come, but assuming that something will be different tomorrow than what it is today.

Operator

Thank you. Our next question comes from Greg McGinnis with Scotiabank. Please proceed with your question.

Speaker 7

Hey, good morning. So Connor, it seems like the portfolio of your size development could easily play a bigger role than it currently is. Just curious what is maybe holding you back from greater development investments and what size you anticipate development pipeline should reach by year end, especially when we consider some of those kind of mixed use entitlements, ground leases that we're starting to see enter the pipeline?

Operator

Thanks for

Speaker 2

the question, Greg. I think when you look at the pipeline of opportunity for us, we do have, as you've been seeing, a war chest of entitlements. And so we really want to focus on giving ourselves optionality and flexibility for the future. And we've Determine that the best use of our time and our capital is really focusing on unlocking the highest and best use of our own real estate rather than taking on development And land banking certain development parcels for future because we really do believe that the assets that we own and control Our better master plan for future and then we can activate them at our so choosing. We do have a couple that are getting close to being shovel ready that you'll see add to our on the back half of the year, but we want to be mindful of the fact that the structure that we think is best suited for FFO growth going forward is to again really focus on the internal growth of the organization and how do we add to that internal growth by layering in So I don't see us going back to adding some large scale ground up development projects, But I do like the fact that we continue to stockpile entitlements and then activate those entitlements that are so choosing in the future.

Speaker 2

We have done it in a number of different ways as you know, Taking a little bit less risk with ground leasing parcels or entering into joint ventures with best in class multifamily developers by Contributing the land at a marked up basis with the entitlements in place. We like that approach.

Operator

Thank you. Our next question comes from Rich Hill with Morgan Stanley. Please proceed with your question.

Speaker 8

Hey, good morning guys. First of all, congrats on a really nice start to the year. I did want to talk about what looks to be a pretty attractive leasing opportunity over the next Couple of years. But specifically, do you think this is becoming more of a renewal business than a new lease rate business? I guess it's a 2 part question.

Speaker 8

Where do you think you can take occupancies versus where they are today? And do you think that just means more Table renewal business, which is a great predictable cash flow. So how should we think about that?

Speaker 6

Yes. It is a multipart question. So let me try to break it down. First, this quarter, we saw historically low vacates, about 25% less than what we've typically seen in Q1. So when you start when you think about our base, it's very, very solid.

Speaker 6

And I think obviously that was cleaned up a lot through the Pandemic, a lot of high risk tenants moved out of our portfolio. So we start with a much more solid foundation. Then when you look at The rollover, as you mentioned, the retention. The retention levels are at the highest point that we've seen too in the last 5 years. So we're up over that 90 plus percent range.

Speaker 6

So you're now those quality tenants for longer when they have that opportunity to punch out either when an option comes up or the renewal notice comes up. So I think it's showing validation of the property, validation of the sector and the strength of the retailer themselves about what they're doing within our centers. But then you look at the new lease activity, 178 new leases, which is also one of the high watermarks for us. You see all those The demand that we've been talking about over several months coming from all sectors. So you are seeing real growth I mean, and you're seeing other retailers say like

Speaker 9

a Boot Barn for us

Speaker 6

this quarter was very active in that smaller midsize junior box category, Really wanting to expand and grow their market share across the country. So you're having all of these Forces combined, which is helping either sustain our occupancy and or grow it. When I look at where we can go, I go back in time and say where we come from. And when I look back at the Great Recession, we average around a 10 basis point to 30 basis point gain through several Years to recover our occupancy. This quarter, Q1, which is historically a bit of a dip in occupancy, we did gain 30 basis points.

Speaker 6

So we are moving in the right direction and I think it's real growth components that are help driving that. Again, where it goes from here, we'll continue this we see good momentum through 2022. There's obviously a lot of Macro forces out there that we can't control, but for now we're managing with what we have and feel cautiously optimistic The direction we're headed.

Speaker 4

I would just add on that point. The renewals and options for the quarter were up 6.4%, which is a real testament to This whole shift of where the portfolio is today, I mean the tenants are staying. The other benefit we have is renewals and options for the most part. There's a lot less Capital required to go in to those boxes when they're staying like that. So it's really very, very beneficial.

Operator

Thank you. Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question. Hi, good morning. Just wanted to ask about the Albertsons stake that you guys have, obviously tremendous But curious if their strategic review influences your thoughts on the timetable about monetizing shares or how you're thinking about harvesting that value?

Speaker 4

Yes. It's a great question. Again, they're doing their own thing with their strategic reviews. We're not aware of anything specific at this point. As you I think you're aware, our lockup are scheduled to expire at the end of June.

Speaker 4

So we're just going to continue to monitor how the investment is outperforming at that point and then we'll make decisions after that about the appropriate timing for monetization or beginning the monetization Again, keep in mind, we can't monetize the entire thing all at once due to wanting to retain our REIT status. As we've talked about on some previous calls, we could have a gain of around somewhere in the $350,000,000 ish range And maintain our REIT status within the REIT. If there was a larger transaction, and I'm making this up, but if there was a total a private of the company and It was monetized all at once, we would have to shift the remaining portion of our investment into our TRS. We would then have obviously all the cash available and over time we would dividend that money back up to our REIT over a period of time to maintain our REIT status.

Operator

Thank you. Our next question comes from Sameer Khanal with Evercore ISI. Please proceed with your question.

Speaker 5

Hi, good morning everybody. I guess, Conor, I was a little surprised that guidance did not move up more here, Considering how strong the tailwinds are, you've talked about the record leasing volumes, you've got the rent growth, occupancy moving up It sounds like you have acquisitions in the pipeline. I guess what's the offset here? Is it higher rates that could impact earnings Growth related to the Weingarten debt. Just trying to make sure I'm not missing anything here and maybe walk us through sort of the swing factors, tailwinds and potential headwinds to earnings growth this year.

Speaker 5

Thanks.

Speaker 2

Sure. So I did outline in my earlier remarks that it's not all smooth sailing, right? You've got mass mandates back in Philadelphia. You've got Obviously record inflation going on. You've got supply chain issues still being resolved.

Speaker 2

So the lockdowns in China, you got the war in Ukraine. So there There's plenty of headwinds out there that we recognize we have to deal with and continue to monitor. In terms of the earnings guidance, We do have a few one timers and some things that impacted the Q1. You want to walk through sort of the breakdown?

Speaker 8

Yes. I

Speaker 4

mean, keep in mind, we did raise The lower end of our guidance by $0.04 and the upper end of the guidance by $0.03 So today's guidance, the low end of the guidance was the previous high end. So We have incorporated all that in. As I mentioned in my prepared remarks, we do have $13,000,000 the remainder of the year of credit loss that's in the numbers. So that's about $0.02 a share. We'll have to see where that falls out.

Speaker 4

But that again, some may say that's a little conservative and that's fine. Well played out because we are still dealing with some of the pandemic issues that are there. And we did during the first We had about $2,000,000 of LTAs, a little bit of one timer stuff. But overall, I mean, again, we're focused on where the credit losses and We want to continue to put ourselves in a position to feel comfortable that we can meet the guidance that we've put out and do On a conservative

Operator

basis. Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler, please proceed with your question.

Speaker 9

Good morning and thank you. Ed, thank you. The queue is much more efficient this quarter than last quarter. Connor, just a question on the cash buyers And Kimco's advantage certainly can appreciate your lot of credit availability, your access to the debt markets. But when it comes to equity, On our numbers, you're trading at sort of just a tick under an implied 6 cap versus the sub fives that you described.

Speaker 9

2nd, you guys have been Pruning a lot of your legacy JVs, so it doesn't sound like joint venturing is in order. You already addressed potential proceeds from Albertson. So Where does Timco get the equity advantage to compete with especially the non traded REITs and the other Private market REITs that are raising money basically at NAV versus where you guys are, which is a discount to NAV.

Speaker 2

I think when you look at Alex, when you look at the amount of cash we have sitting on our balance sheet, start there. We were sitting with record amounts of cash that's not earning anything on our balance sheet. We have tremendous access to capital. So start there. Then you look at the $200 plus 1,000,000 of free cash flow we have after dividends.

Speaker 2

So you combine those two factors and obviously we're sitting pretty with the amount Of cash we have there and that doesn't account for any monetization of Albertsons, which Glenn mentioned earlier, which is an additional, call it, dollars 300,000,000 to $400,000,000 plus. We do feel like we are in a good position to accretively invest our cash that's sitting on the sidelines right now. Now we do look at our cost of capital every day and make sure that we focus on investing accretively there. And we do feel like when you look at the opportunity set of how set of how Ross outlaid all of our investment opportunities and blend those returns together, We do feel like we actually are in a unique position to invest accretively even in these competitive markets where we're trying to add to our scale and our concentration.

Speaker 3

Yes. Alex, I would just add, there's no doubt when you look at the cap rates that some of these assets are trading at that we're going to be Passing on a lot more deals than we're going to be winning, but we also factor into our analysis a variety of different metrics. The going in cap rate is one metric, but if there's an asset or a portfolio that has substantial growth, substantial below market leases, redevelopment opportunity, The year 1 cap rate and NOI is really just one of many factors that we're taking into consideration when evaluating our strategy. And as Connor mentioned, it really is a blend of the structured investments, the acquisitions, the partnership buyout. So when you put it all Together, it does come blend out to a return that's well in excess of our cost of capital.

Operator

Thank you. Our next question comes from Michael Bilerman with Citi. Please proceed with your question.

Speaker 5

Thanks. Connor, I want to talk about the sort of spread between leased and occupancy, which has continued to grow. And I wanted you to sort of unpack it a little bit. It sounds like the leasing activity in terms of driving the lease rate up is a big driver for that. And I just didn't know if the tenants not taking occupancy.

Speaker 5

Is that due to any sort of is it labor? Is it construction? Is there just a delay in getting these stores open for that rent to start commencing? Or is it just that the leasing environment is so strong, so you're pushing the headline lease number faster than you're able to get the stores open? And how do you sort of see that trending as we move throughout the year?

Speaker 2

Sure. Thanks, Michael. I'll start and then Dave, you can jump in. It is a combination of right now we're seeing leasing volume continue to be at robust levels where it's taking That's spread up and that's sort of the driver of it in the Q1. Now we are laser focused on trying to get our tenants open and paying rent as quickly as possible.

Speaker 2

For many, many years, we even have internal expeditors that are just focused on the process of as soon as the ink hits the paper on the lease, We take that tenant and hand walk them through the process of getting their permits and getting open and operating as quickly as possible because the sophistication of tenants Very greatly in that process and we felt like it's a priority of ours every day is a day that we could be collecting more rent. So That is a big focus of ours. Now the supply chain issues, as I mentioned earlier, are still a factor. We have pre ordered A lot of HVAC units, roofing materials, those types of items that we know we use a certain amount on an annual basis to try and expedite the process. Labor is still an issue as you've seen the tight labor markets.

Speaker 2

Now our scale does come in handy when we are doing multiple projects in areas. We do have the ability to use crews on assets that are clustered together. So we do have some scale advantages there and some efficiencies of scale. So that's Again, one of the ways that we continue to try and use our platform to our advantage.

Operator

Yes. And then just to speak a

Speaker 6

little bit about the numbers. So So our lease economic did grow from 270 basis points to 310 basis points this quarter. That annualized rent amount Of that delta spread is now equal to $46,000,000 whereas previously it was $40,000,000 when we talked about it last quarter. We did have A number of tenants commenced rent this quarter. In the quarter, it's about $1,300,000 On an annualized basis, that represents just over 8,000,000 We do anticipate another $10,000,000 to $15,000,000 to come through the balance of this year through tenant openings.

Speaker 6

Specifically to your question, Michael, The new lease activity did outpace any impact that we have seen as a result of tenant delays. That is still relatively modest when you look at the larger sum. So we're still on track for the year, but the pool is growing as a result of the demand that we've seen on The new lease activity.

Operator

Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.

Speaker 3

Hi, good morning. Just a question on, I guess, prior collections, they were also strong in this quarter. How are discussions with tenants that had prior debt collection issues? And just generally, where are you in terms of the potential pool of

Speaker 10

So in terms of prior collections, To answer that part of your question, we did have about $6,400,000 in collections that related to prior period receivables. And then just also to note, our cash basis tenants for the quarter, we did collect 76% on those receivables for the quarter. If you're looking at what's the potential, of course, we would love to know truly what it is we're going to get paid on our uncollected. But I think it's helpful to break it down in this way. If you look at our reserve, about 70% of the reserve relates to cash basis Which is about $30,600,000 And then inside that number, I'll break it down a little bit further for you.

Speaker 10

Dollars 9,600,000 of that is related to That vacated the space. So of course, when a tenant vacates, the probability of collecting is a little bit harder as they're not a current tenant. And then the last piece to keep in mind is of that cash basis number $4,500,000 of it is related to deferred receivables. So They have a long period of time to pay those receivables. So I think with all those pieces, it kind of lays out What you have potentially on the high rise, but again, we don't really know exactly what it is we're going to collect.

Operator

Thank you. Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.

Speaker 11

Hi, good morning, everyone. Ross, given the rise in the 10 year, the cap rate spread is pretty compressed versus historicals. We know there is ample investor capital focused on retail, but are you starting to see any real time upside I'd pressure to cap rates, perhaps fewer bidders. I mean, so far, I agree, they do seem pretty firm. But either in future potential deals or if not yet, how is private market investor sentiment trending?

Speaker 3

Yes. No, it's a great question and we're watching it very closely. And what I can tell you is we have not seen any slowdown as of yet for our product type. And I think it's a variety of factors, you named a couple. There is a substantial amount of capital.

Speaker 3

The fundamentals of our business continue to showcase the strength. And when you look at the spread that we have still to some of the other asset classes, it is a very compelling case for investors to buy high quality, open air shopping centers. So again, we're watching it very closely. We have not seen any slowdown I'm bidding on both assets that we're trying to acquire as well as some of the assets in our joint ventures that are on the market for sale. We have an asset right now that It's in the best and final that we're selling and there's 3 or 4 groups that are really neck and neck trying to win the deal.

Speaker 3

So I think if there was any Sign that there was concern about that, we would start to see it in some of these processes and it's just not there yet. But we'll continue to be very disciplined with our capital and we watch

Operator

Our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.

Speaker 12

Hey, guys. Good morning. And I apologize in advance for a multi parter here. But I wanted to ask you about spreads. Spreads were up big in the Q1.

Speaker 12

I guess I'm curious, are we looking at a new norm here, a new level of norm in that Small shop is becoming a bigger piece of your leasing here. And with small shop occupancy at 88%, what's in the guide for year end small shop? And then can you clarify what is the same store NOI guide? I think last quarter you mentioned around 3%. Just want to get some clarity on if that's been updated at all.

Speaker 12

Thank you.

Speaker 6

I will take the first two and then I'll kick it over to my colleague Glenn Cohen to take the 3rd. As it relates To spread, I tend to say every quarter spreads are lumpy. Spreads are all dependent on the population of that given quarter. This quarter, obviously, we were encouraged by the spread count of achieving that 18%. Last quarter, it was a little bit less, but So in the double digit range.

Speaker 6

So it is really just dependent on a quarter over quarter. But generally speaking, when you look at the trend line, we look at the net effective rents. The net effective rents when we look at the trailing 4th quarters is still growing at a modest pace going in the right direction. So we're encouraged by that as the new rents are helping offset some of the obviously the increase in costs that we've seen due to inflation, supply chain issues, etcetera. So still very much encouraged by that trend.

Speaker 6

As it relates to small shop occupancy, yes, it is at 88.4%. When you look at a year over year comparable, it's up 260 basis points. Weingarten did have an impact to that, to the positive, Which is good, but even on the Kimco legacy stuff, we're up substantially year over year. So it is moving in the right direction. In terms of credit, we're seeing 60% of our small shot deals come from national and regional players.

Speaker 6

So you are building a stronger credit base With these new deals, I'm going to go forward, which is a good sign in terms of sustained cash flows in the future. But we don't This is guidance for occupancy at year end, but again to my earlier remarks, we tend to see a 10 basis We're trending well now. We have a 30 basis point overall gain this quarter. So we're encouraged by the science and the direction we're going. Glenn?

Speaker 6

Sure. So as

Speaker 4

it relates to your question regarding same site NOI, as we've mentioned a few times already, 2022 same site NOI Our guidance is a little tricky. You have so much reversal of credit loss in the prior year, which is why you saw an incredibly strong same site NOI last year. So you're looking at very, very difficult or Challenging comps for the next three quarters because of that. Having said that, if you want to pull out all the credit loss, Just look at it and where the growth is coming from, it is in that 3% range. And the real encouraging point is because of the increased occupancy, We're seeing the minimum rent composition of it really improved.

Speaker 4

So during the Q1, the minimum rent component of same site NOI growth Made up 3.9% of that total growth number. That to me is really the driving factor. So we and again, at the end of the day, we still think put it all together even with the credit loss that will be positive.

Operator

Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Speaker 13

Hi, good morning. Maybe just a follow-up question on the Albertsons plan given that late June is just 2 months away at this point. So could you confirm probably again Whether any monetization is currently assumed in guidance and if it's not, why is that? Is it just that at this point you aren't sure what the use of proceeds would be, so Is there a possibility that you don't monetize some this year?

Speaker 4

So It's not in guidance except for the fact that the dividends that we earn from the investment are in our guidance numbers. Again, we monitor the investment very, very closely. And until we get to the end of the lockout period, it's It's very, very hard to predict what we're going to be able to do and they're still in the middle of their own strategic alternatives. So it's somewhat fluid, but come the end of June, We see that we'll have our opportunities and our options available to us. But again, not in the guidance except for the dividend component.

Operator

Thank you. Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question. Yes. Hi.

Operator

I'm wondering, did any parts of the portfolio disproportionately add to the quarter sequential occupancy Again, whether it was something geographical or wine garden or something else?

Speaker 6

So overall occupancy actually Gains were made across the entire company. So that was actually a really encouraging sign when you saw both East, The West, North, the South all see positive gains and momentum in terms of occupancy. Obviously, when we look at the Sunbelt and coastal markets, it's representative of Over 95% of our activity, that's where we're seeing sizable momentum. I think it's no surprise to anybody. Florida is doing quite well as is Texas and other markets down there.

Speaker 6

And so you are seeing some stronger rent growth Coming from the SunbeltCoastal markets versus our non coastal non Sunbelt markets, but overall everyone had a positive gain.

Operator

Thank you. Our next question comes from Ki Bin Kim with Truist Securities. Please proceed with your question.

Speaker 11

Thanks, and good morning. So given the strong leasing environment, I'm curious about your strategy when it comes to perhaps Proactively engaging some of the weaker credit tenants that may have gotten a boost from COVID demand, any kind of insight from your mental approach that you can share?

Speaker 6

Sure. I mean, we're in touch with our entire tenant base on a regular basis. For any of those that continue to struggle, I feel like the end is in sight. We want to be proactive in trying to recapture that space and create an opportunity to release it, enable them to move on and do something else. That pool I think is relatively small.

Speaker 6

Again, a lot of it was purchased through the pandemic. But we're always normal course of business, Stay very, very close to your tenant base and assist those that need help that you feel like have a longer run rate and then work out an agreement for those that you don't think will make it.

Speaker 2

We did see a few tenants renew that we anticipated vacating this quarter, which we found to be interesting because We didn't see sort of the same move outs as we had budgeted or anticipated. There was a much higher retention rate even on some of the tenants that we thought were going to give back their

Operator

Thank you. Our next question comes from Flores Van Dijkm with Compass Point. Please proceed with your question.

Speaker 14

Thanks. Good morning, guys. I was going to ask you something about getting a green light from the markets because you're Trading in line with consensus NAV, but Alex sort of asked that one already. So I'm going to move on and maybe talk a little bit about Leasing strategy and maybe Dave you can comment on when you're signing new leases, obviously The majority of your space is anchor space as it is for most Strip owners. And those anchor tenants tend to have longer rents, but when they come up, you have bigger spreads potentially.

Speaker 14

But if you can talk about the bumps that you're getting and particularly also the bumps on the small shop space, has that gone up? Are you getting or Negotiating higher fixed bumps in your rents as a result of the either the market strength or the higher inflation environment today? And maybe if you can give sort of comment on your profile and how that is shifting Potentially going forward with the lack of new supply in the market in the last decade in the shopping center Does that give you more confidence going forward on some of your growth prospects?

Speaker 6

Sure. Yes, of course. A lot there, so I'll try to unpack it a little bit. When economics are really driven by the markets, Right. And each of the submarkets supply demand dynamic is your number one driver to help determine where you have pricing power.

Speaker 6

Obviously, with our spreads and what we've been showing, we feel good about the position that we're in that we have the pricing power to push rents north across the majority of all the markets that we operate in. As it relates to bumps and escalations, when you look at the anchors, we typically say 10% to 12 On average is what you're pushing for. Again, you might get a higher rent, maybe an adjustment in the Out of your increases, maybe there's some consideration to cost. So it all goes into the soup there to determine the final economic deal, But we try to push those as much as we can. On the small shop side, we've averaged around 3% to 4%.

Speaker 6

Historically, there are some markets You know in the Sunbelt area that pricing power is such that we can push it further north than that at times. And our teams are tasked and know the markets best about when they can do that and when they can leverage that opportunity as our occupancy starts to tick up, that And you start to tick up that pricing power should increase as well. But really, yes, it's a multi dimensional negotiation I'm in a place and what's available and the rest of the economic structure that goes into the deal. But Net net, we're seeing encouraging signs where we need to be.

Speaker 5

Loris, the only other thing

Speaker 2

I would add is that we're in the very early innings of trying to understand the dynamic of How much occupancy costs are changing due to the fact of e commerce being a halo to the physical store. We don't really have perfect data on that yet, but I think that's part of the reason why our renewals and our retention rates are much higher Because that occupancy cost is dramatically different than the traditional occupancy cost that reflects sort of the 4 walls. So I think that's a trend we're actively trying to unpack. As Dave mentioned, it really is all market driven, but I think the retention rates are going to be higher due to the fact that this additional benefits occupancy cost is flowing through to the retailer.

Operator

The confirmation tone will indicate your line is in the question queue. Our next question comes from Chris Lucas with Capital One Securities. One my mistake. Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.

Speaker 15

Hi, good morning. One

Speaker 16

of your smaller peers discussed the capacity to buy non anchored centers, given the ability to pursue centers With a higher percentage of credit tenants, I know your bread and butter is grocery anchored, but is this something you would pursue maybe given the opportunity to achieve better yield?

Speaker 3

That's a good question. We do look at a lot of different formats of retail. At the end of the day for us, It's a very local business that comes down to the real estate. So if we determine that there is value creation or upside With below market leases, with redevelopment potential, then we would consider any format of Open Air Retail. What we tend to see in the marketplace today is the strength of the grocery anchor, the amount of visits that it creates, The traffic that it creates being a real benefit to the overall asset and the cash flow of that asset.

Speaker 3

So we continue to focus on maybe some larger format

Operator

Thank you. Our next question comes from Chris Lucas with Capital One Securities. Please proceed with your question.

Speaker 5

Hey, good morning, everybody. Just wanted to follow-up sort of Connor on your comments about the importance of Last Mile. And I guess I was really trying to Dan, if there's any relationship in rent pricing between last mile industrial, particularly in selected maybe coastal or very urban markets and what you're seeing in terms of what you're able to get out of some of your anchor and junior anchor tenants for in terms of rents. Just trying to understand if there's any relationship between the industrial markets and the box anchor or retail space?

Speaker 2

Yes. Chris, it's a really good question because I think we're starting to see that line being blurred dramatically. And it is Yes, tenant by tenant specific of what does their coverage look like in a certain trade area to service their customer And how do they go about utilizing both their industrial footprint and their retailer footprint to solve that equation. And I think it really just comes down To the specifics of that retailer in that geographic area and how difficult it is to penetrate that trade area. So That's where I continue to think we have a pretty unique situation where this ongoing trend that's Gaining momentum is starting to blur those lines.

Speaker 2

And again, the occupancy costs that I mentioned earlier is starting to Change the dynamics, I think of the economics of retailers and how much value they put on their physical retail brick and mortar space as it can operate in a multiple different capacities. So it is early, but I do think that's a trend worth watching.

Operator

Thank you. Our next question is from Paulina Rojas with Green Street. Please proceed with your question.

Speaker 15

Good morning. I am intrigued, does the higher interest rate environment need you to use higher hurdle rates for acquisitions? I'm thinking that independent of whether you used or not debt financing, in theory, keeping all other things constant, The attractiveness of the real estate investment is drops, right, relative to other fixed income vehicles?

Speaker 3

Yes, it very much is a factor and really it factors into our cost of capital. So when we look at our cost on a daily basis, it is a blend between our cost of equity and our cost of debt and the volatility there does have an impact on that metric. So In theory, it does play into our mindset and our thought process and the hurdle of what we're looking to acquire. That being said, the cost of capital doesn't necessarily move in tandem with interest rates. And what we've seen In our program and our external growth is that the combination of the structured investments, which have a very high yield, Combined with some of the 3rd party acquisitions and partnership buyouts does still provide us the opportunity to invest at a meaningful spread to that cost of capital even in an environment where interest rates are moving upwards today.

Speaker 3

So we watch it very closely. We'll continue to see how it impacts pricing in the marketplace, but with the pipeline that we've created thus far, we're very confident in our ability to invest

Operator

Thank you. We have reached the end of our question and answer session for today. I would like to turn the floor back over to management for any closing comments.

Speaker 1

Just like to thank everybody that participated in the call today.

Speaker 5

We hope

Speaker 1

you enjoy the rest of your day. Thank you so much.

Powered by Quartr