Kimco Realty Corporation (NYSE:KIM) Q1 2023 Earnings Call Transcript

Kimco Realty Corporation (NYSE:KIM) Q1 2023 Earnings Call Transcript April 27, 2023

Kimco Realty Corporation beats earnings expectations. Reported EPS is $0.46, expectations were $0.2.

Operator: Greetings, and welcome to the Kimco Realty Corporation’s First Quarter 2023 Earnings Conference 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 call is being recorded. It is now my pleasure to introduce your host, Mr. David Bujnicki, Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bujnicki, you may begin.

David Bujnicki: 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 that are also available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward-looking, and it is important to note that the company’s actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. 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. Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website. Also, in the event our call was to incur technical difficulties, we’ll try to resolve as quickly as possible, and if the need arises, we’ll post additional information to our IR website. And with that, I’ll turn the call over to Conor.

Conor Flynn: Good morning, and thank you for joining us today. I will begin with an overview of the leasing environment and share how we are strategically well-positioned for long-term growth. Ross will then cover the transaction market, and Glenn will close with our key performance metrics and updated guidance. We are off to a great start to the year with solid first quarter results, including over 4.5 million square feet of leasing as we benefited from our combination of high-quality grocery-anchored assets emphasizing off-price retail and everyday essentials in first-ring suburbs, that makes us uniquely positioned to benefit from what we believe to be longer-term trends relating to consumers and retail strategies. We accomplished this leasing in the face of high interest rates, bank failures, signs of a weakening economy and troubled retailers.

Our dedicated team and resilient portfolio not only withstood these pressures but outperformed. First, the consumer. While inflation remains stubborn, the Kimco shopper remains sturdy, as we continue to see healthy traffic reported across our portfolio. According to our large national retailers, the demand for essential goods, services and groceries, continues to be strong. In addition, the flexible hybrid work environment is creating more opportunity for shoppers to frequent our centers. Finally, omnichannel shopping continues to outperform pure online shopping, as optionality is the winning formula by providing consumers the convenience of shopping online and picking-up or returning at the local store. Request to expand our nationally-recognized curbside pickup program continue to grow from our entire stable of national, regional and small-shop tenants.

In addition to the resilient consumer, leasing demand and the ability to push rents continues at a robust pace due to the lack of new supply and high barriers-to-entry at our highly desirable locations. The demand for new space is well diversified, for the mix of new deals this quarter, spread among off-price, grocery, sporting goods, fitness, health and wellness, medical and fast casual dining. As part of our focus on obtaining the highest and best use of our properties, we also secured two new entrants to the Kimco portfolio this quarter. A Tesla dealership in Austin, Texas, and a market by Macy’s in San Diego, strong leasing supported by this robust well rounded demand is reflected in our new leasing spreads of 44%, a five-year high. Occupancy bust the seasonality trend of dipping after the holidays and gained 10 basis points.

Thanks to our team’s stellar efforts and our small shop leasing initiatives. During the first quarter, we anticipated some space coming back from underperforming retailers, including Bed Bath & Beyond, who just filed for bankruptcy this past week. This has been widely expected, and we’ve been well-prepared for this outcome, as we have actively marketed all of our Bed Bath basis for some time. To highlight our successful efforts, we started the year with 30 Bed Bath leases. During the first quarter, we sold one location and released three boxes, including two we recaptured with a mark-to-market spread of 24%. Regarding the remaining 26 Bed Bath leases, we are either in lease or LOI negotiations on 22 locations with the mark-to-market spreads similar to what we have executed to date, which exemplifies the strong activity from a diverse pool of retailers looking to expand.

The remaining four locations are either being marketed for lease or of potential redevelopment candidate. The lack of supply and inability to meet new store target is a constant refrain from our retailers during our portfolio reviews and remains key catalysts for the lease up of these locations. It is also why our retention rates for the portfolio continue to remain well above historical levels, at 90% this quarter. With this pace of retention and the strong leasing demand, we believe that over the long-term, we should see an improved underlying growth rate for our business. Further enhancing the value of our first-ring suburbs locations, is the increased demand for industrial and residential assets. This competition for land or conversions makes the cost of new retail development even more prohibited, which will further reduce supply for potential new retail.

And when you combine the rising rents in the residential sectors with the competitive redevelopment advantages at our existing locations in the first-ring suburbs, the opportunity to add more mixed use density provides us the long-term opportunity to drive further growth and value creation. In the end, strategically, we are well-positioned for what could be a choppy second half of the year and beyond. With our open-air high-quality grocery-anchored portfolio producing record results, our leverage metrics at all-time lows, along with our significant cash position, we are positioned for growth and we’ll look to be opportunistic when others cannot in our quest to outperform on a sustained basis. Ross?

Ross Cooper: Thank you, Conor, and good morning. I’ll begin with the market for transactions, which remains restrained given the volatility in the capital markets and elevated borrowing costs. Transaction volume was down across the board in the first quarter. However, what has remained constant is the significant demand from both institutional and private investors for high quality open-air retail. A healthy level of equity capital remains patiently waiting on the sidelines for opportunities to acquire our product type as the property fundamentals continue to improve within this retail sector. Notwithstanding the improving operating fundamentals, investors are seeking higher cap rates to offset higher cost of capital. At the same time, however, supply remains limited with sellers holding out for higher pricing unless they face refinancing or other pressure to sell.

How long this stalemate last is the ultimate question. Despite these broader market conditions, we have found ways to selectively and accretively put capital to work. On the last earnings call, we mentioned the two Southern California grocery assets we acquired from one of our JV partners. Subsequent to the call, we were successful in buying out a third grocery-anchored site in Southern California from the same partner. This property is a dual grocery-anchored site with a smart and final traditional grocer in addition to a Trader Joe’s. We are excited to add these three strong performing grocery assets to our wholly-owned portfolio despite the market conditions I described. We also added a new structured investment into our program in the first quarter and $11.2 million subordinated loan on a Sprouts-anchored shopping center outside of Orlando, Florida.

As with all of our structured investments, we retain the right to acquire the asset in the future in the event the sponsor looks to sell. This property is another great addition to the structured portfolio with a very attractive return at a very appealing basis on our investment. As it relates to dispositions, we previously mentioned the two Savannah, Georgia power centers we sold back in January. Prior to quarter-end, we sold a third power center in Gresham, Oregon. To my point earlier that it is taking longer to transact, we’ve been working on this since the fourth quarter of last year and successfully closed at the end of March. While we don’t anticipate a significant number of dispositions in 2023, the sale of these three centers reflects our efforts to ultimately own a portfolio consisting of primarily grocery-anchored retail centers and mixed-use destinations in our top major metro markets.

All-in-all, we are in a great position to continue to be opportunistic, should current owners start to feel more pressure to transact. Our strong liquidity allows us to move quickly and aggressively on the right acquisitions or joint venture buyouts and to be financially helpful to owners that need an infusion of capital for debt pay-downs or asset repositioning, utilizing our structured investment program. I will now pass it off to Glenn for an update on our financials and outlook.

Glenn Cohen: Thanks, Ross, and good morning. Our solid first quarter results demonstrate the strength of our high-quality operating portfolio as evidenced by increased occupancy, robust leasing spreads and positive same site NOI growth. Furthermore, we bolstered our sector-leading liquidity position and improved our leverage metrics with additional proceeds received from our Albertsons investment. Now for some details on our first quarter results. FFO was $238.1 million or $0.39 per diluted share as compared to last year’s first quarter results of $240.6 million or $0.39 per diluted share. Notably, last year’s figures include a charge of $7.2 million or $0.01 per diluted share for early repayment of debt. Our first quarter results were driven by strong NOI growth, largely due to higher consolidated minimum rent of $14.5 million.

This increase was offset by higher bad debt expense of $7.1 million as the current period had a more normalized credit loss level as compared to last year, which benefited from credit loss income due to reversals of reserves. In addition, pro-rata NOI from our joint ventures was lower by $3 million, mostly attributable to asset sales and higher bad debt expense. Other factors related to the change in first quarter results were higher G&A expense of $4.8 million and pro-rata interest expense of $6.6 million. Although interest expense was higher in the current period, last year included a $7.2 million charge for early repayment of debt. The uptick in G&A expenses was largely driven by higher staffing levels following the Weingarten merger, as well as greater expenses related to the value of restricted stock and performance units awarded.

The increase in interest expense stem from lower fair market value amortization, linked to the previously repaid above market Weingarten bonds as well as higher interest rates associated with floating rate debt in our joint ventures. Turning to the operating portfolio which continues to produce positive metrics fueled by the increase in occupancy and strong leasing spreads mentioned earlier. Same-site NOI growth was positive 1.4% for the first quarter. However, it’s worth noting that this figure would have been even stronger at 4.2%, if we excluded the impact of $4.6 million of credit loss income from the previous year, compared to $4.3 million of credit loss expense for the current period. Nonetheless, we are encouraged by the composition of the same-site NOI growth which reflects a 430 basis-point increase from minimum rents and reduced abatements as well as a 100 basis-points boost from higher percentage rent and other rental property income, offset by lower recoveries of operating expenses of 110 basis-points.

Overall, these results demonstrate our continued focus on driving strong revenue growth across our portfolio. As it relates to our Albertsons investment, during the first quarter, we received a special dividend of $194.1 million, which is included in net income, but not FFO. The Albertsons’ special dividend is considered ordinary income for tax purposes, thus we are evaluating the need to make a special dividend to our stockholders at some point this year to maintain our compliance with REIT distribution requirements. In addition, we sold 7.1 million shares of Albertsons stock, generating net proceeds of $137.4 million. It is our intention to pay the tax on the capital gain from the sale and have recorded a $30 million tax provision, which is also excluded from FFO.

This strategic move will allow us to retain approximately $107 million for debt reduction and/or accretive investments. Subsequent to quarter-end, we sold an additional 7 million shares of Albertsons stock and received net proceeds of $144.9 million. In the second quarter, we recorded a tax provision of approximately $32.7 million for the capital gain component. While it’s great that we have significantly monetized this investment, it’s worth noting that we also benefited by approximately $0.01 per share of FFO per quarter from the ACI common dividends paid. Going-forward, we will no longer benefit from the same amount each quarter, given the significant monetization today. Currently we hold 14.2 million shares of Albertsons, which has a value of approximately $300 million.

We ended the first quarter with over $2.3 billion of immediate liquidity comprised of over $300 million in cash and full availability of our recently renewed $2 billion revolving credit facility. Our leverage metrics continue to improve with consolidated net debt to EBITDA of 5.8x, and 6.2x on a look through basis, including our pro-rata share of joint venture debt and perpetual preferred stock outstanding. The look through metric of 6.2x represents the best level since we began reporting this metric in 2009. As I just touched on, during the first quarter, we renewed our $2 billion revolving credit facility with 20 banks. The facility now has an initial maturity date in March 2027 with two six-month extension options, bringing the final maturity date to 2028.

This is a green facility, initially priced at adjusted SOFR plus 77.5 basis points. The borrowing spreads can increase or decrease up to 4 basis points, based upon our success in reducing Scope 1 and Scope 2 greenhouse gas emissions. Based on our current progress, the borrowings spread has already been reduced by 2 basis points to 75.5 basis points. Turning to our outlook. Based on our first quarter results, the monetization of Albertsons shares and expectations for the balance of the year, we are tightening our FFO per share range to $1.54 to $1.57 from the previous range of $1.53 to $1.57. We are lowering our lease termination income assumption by $10 million to a range of $4 million to $6 million with more than half already received in the first quarter.

Initially, we believe the transaction in the first quarter would result in lease termination income. However, when we reviewed it in more detail, given the complex accounting treatment, we arrived at a different conclusion. Our previous assumptions remain intact regarding same-site NOI growth of 1% to 2%, which includes credit loss of 75 to 125 basis points. And now we are ready to take your questions.

Q&A Session

Operator: And our first question comes from Michael Goldsmith with UBS.

Michael Goldsmith: Good morning, thanks for taking my question. My first question is on Bed Bath & Beyond and just kind of the shape of how these closures and then potentially coming back online, how that’s going to affect the financials? So this does mean that we should expect kind of 60 basis points of rent coming off and 100 basis points of occupancy coming off and then over-time, we get that back kind of next year and the $8.5 million of rent kind of comes back and they are kind of $10.5 million, say like, does that and what would be the timing of when that would kind of comeback online?

Ross Cooper: Yes, good question. So, I would say what you just articulated would be sort of the worst case scenario in the sense that everything went out. Nothing was, yes, purchased at auction for a side, which is — in a back that is yet to occur. And we anticipate happening in June, end of July, so there could be some impact to that to the positive, considering the competitive landscape that is a very real possibility. In terms of the activity, as Conor articulated, unless this three boxes that we’ve already leased, 26 have remained, 7 of those were rejected in the day-one motion. We’re at least with over half and have LOI’s on the balance, all of which are single-tenant backfills which helps reduce the conversion and the downtime to get a tenant reopened.

So that’s positive. The balance of the boxes that the majority of those are all also single-tenant backfill opportunities and we are either at lease are at LOI stage, the handful that Conor mentioned in his script, we are assessing real redevelopment opportunities for those as a potential or we look to do a single-tenant backfill. So we are in a great position from where we see, obviously, the lack of muted supply, no retail development on the horizon for the years to come. Retailers are really seeing this as the opportunity to grab that market share and expand their portfolios in these key markets.

Glenn Cohen: Yes, Michael, we’re a bit ahead of where we thought we’d be. As you saw, we raised the lower end of our guidance even with — without the termination income that we anticipated and a lot of that is attributed to the environment that we’re in today for high quality locations like Bed Bath & Beyond have. So, as you can see the diversity of demand is quite strong. We’re in a good spot to really — by June we’ll really have a better understanding of which ones are coming back to us. But we’re not waiting for that. We’re being proactive is lining up replacements with very strong leasing spreads.

Operator: Thank you. And the next question comes from Craig Mailman with Citi.

Craig Mailman: Hi, good morning, everyone. Conor or Glenn, maybe, I want to follow-up on that last point you guys effectively raised guidance a half penny at the midpoint despite having a drag in lease term fees. It looks like effectively a $0.02 raise. Can you just walk through exactly what’s driving that, because the operating assumptions didn’t look like they changed all that much?

Glenn Cohen: Yes, sure. Again, it’s really driven by the rent commencements. So we are a little bit ahead of plan. What’s driving it. Also the timing of investment activity and then the impact of what we get in terms of the bankruptcy situation. So we are a little bit ahead of schedule what we had budgeted. So we are comfortable with raising that lower-end of the range.

Conor Flynn: Yes. And I think one of the big drivers too for us to get comfortable with raising the bottom-end is the retention rate. As I mentioned earlier, that’s really driving a significant amount of cash-flow growth for us. And when you look at where we thought we’d be versus where we are today, we are ahead of schedule there.

Operator: Thank you. And the next question comes from Floris van Dijkum with Compass Point.

Floris van Dijkum: Great, guys, I’ve got a question, I guess in two-parts. Number one, I would like maybe if you can walk us through the lower NOI margin and expense recovery for the quarter and what was behind that and how does that impact your views towards maybe fixed CAM or having pure just on a inflation-adjusted basis your recoveries struck. And then the second part is, in terms of Philadelphia, I noticed there was — your Philadelphia portfolio is lagging quite a bit. I think something like 480 basis points in terms of occupancy relative to the rest of the portfolio. If you can give us maybe some more details behind that and if that’s specific to maybe potential redevelopments or some other opportunities or is that just market has been less good than some of the other ones?

Conor Flynn: All right. I’ll take the second one first and then I’ll kick it over to the rest of the team to address the margin. As it relates to Philadelphia, it’s just related to the Kohl’s transaction, where we took back two of the Kohl’s leases as part of that transaction in Q1, which we knew were already vacant. So that was the add there.

Glenn Cohen: The rest of the Philadelphia portfolio is quite strong and actually trending at or above when you look at it from the whole portfolio.

Carmen Decker: Floris, just on your NOI margin question and your expense recovery question. You look at the NOI margins and you actually take a look at the credit loss that’s in there and you pull that out from both periods, your margins are more in-line. So that’s really the driver on that decrease that you’re seeing on the page. And then when it comes to the recovery, there were some expenses that we front-loaded for the quarter. But when you look at where we’re going to land for the year, we’re still comfortable with that same-site NOI of 1% to 2%. So it will level out on the recovery side as the year goes on

Operator: Thank you. And the next question comes from Juan Sanabria with BMO Capital Markets.

Juan Sanabria: Hi, good morning. Just hoping you could talk a little bit about the investment market, what asset values or cap rates you’re seeing or what’s being transacted at a couple of deals both on the buy and the sell-side in the first quarter? And how that compares to the mezz lending opportunity that seems to be a growing opportunity set for you?

Ross Cooper: Sure, as I mentioned in the remarks I made, it is a little bit of a stalemate right now. So the transaction volumes are way down. You are seeing certain deals get done in the first quarter. We did see some transactions occur in the 5s, similar to pricing from last year, but they are fewer and farther between. When you look at sort of the bid-ask spread, it’s very deal specific. So as I mentioned, there are a buyer that are still looking for higher cap rates and sellers that are holding firm because there’s really not any sort of forced situation with lenders who are cash flow situation or challenges. So from that perspective, we were successful in acquiring three shopping centers from our joint venture partner that was looking for some liquidity.

So it’s really just about staying opportunistic and ready with the capital which we have. As it relates to the mezz financing and our structured investment program, that is also something that we’re obviously very focused on, hitting one transaction in the first quarter, but again because there really hasn’t been any forced sales or distress situation as it relates to the lending community, they are a little bit more challenging in terms of sourcing right now. But having lots of conversations hang around the group and we’re ready to move as soon as those opportunities present themselves.

Conor Flynn: So the only thing, I would add is that we are seeing pretty significant capital formation for our product. I think for a period of time certain folks are on the sidelines, looking at open-air, specifically grocery-anchored shopping centers. We’re having a lot of inbound requests for dialog to potentially have new capital at our call for investment purposes. Obviously, we’re sitting with a tremendous amount of cash today. So we’re looking at the opportunity set internally, but it is nice to see a significant amount of capital formation for our product.

Operator: Thank you. And the next question comes from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb: Hi, good morning. So a question on the depth of demand across your portfolio. Would you say it’s pretty evenly spread among anchor, junior anchor, small-shop, et cetera, an outparcel or is one area much deeper and actually more focused on which areas are sort of the latest in backfill demand and how you sort of up those are spot that you would expand or subdivide. I’m just trying to think about where the areas of least amount of demand are in space across the portfolio?

David Jamieson: Sure. Good question, Alex. So I’d say we’re seeing pretty consistent demand across the square footage at this time. Historically, sort of that, a tweener, 68,000, 69,000 square feet has historically been a little bit lighter than the smaller shops or — we’re from 1,000 or 5,000 and then the anchor boxes 10,000 over. But even in that category, we’ve seen great demand. A lot of people coming out of the malls, whether it’d be Sephora. And others that are looking to backfill that particular box category has really been a benefit. So we’ll continue to push that. As it relates to the anchor activity, flash out the Kohl’s impact for anchor boxes this quarter. We would have been up another 20 basis points from last quarter.

So we would have been at 90 instead of 98, we would have been 98.2. As we continue to see that and goes back to earlier point that there’s just no new development supply that’s coming online here in the coming years. And so these rare opportunities where you get availability and good locations, you are going to jump on those and stretch a little bit to make sure this is secure, because they don’t see anything else on the horizon. And they have to have that growth profile in their book.

Conor Flynn: The only thing I would add is that, the retailers are getting less rigid on their square footage requirements. So when you look at the typical prototype, whether it’s a small shop and mid-size box or an anchor box, typically it’s now opportunistic where they’re looking at the space available versus their prototype and making it work, which obviously lends itself to our business because if you can backfill the entire space with one tenant, the CapEx load goes down dramatically and that’s what we’re experiencing on the Bed Bath boxes.

Operator: Thank you. And the next question comes from Samir Khanal with Evercore.

Samir Khanal: Hi, good morning, everyone. Conor, can you talk about the shop leasing environment and how you think that’ll fair in this sort of this cycle? We’ve seen the bank failures here and that impacts the smaller tenants. So how are you thinking about credit environment for the shops that they go into a potential slowdown here? Thanks .

Conor Flynn: The shop space, as you’ve seen it with our occupancy growth continue to be the bright spot. I mean, it’s really interesting, if you think about the diversity of demand and what’s driving that, it’s pretty remarkable. I think we’re at a point in the retail evolution, where the last mile or closest retail destinations where you live and where you work, has really adopted, I would say, a hybrid retail environment where it’s medical, it’s services, it’s essential goods and services, it’s grocery, it’s health and wellness, it’s physical. It really is interesting to see the diversity of demand driving that small shop growth opportunity for us. And I think when you look at the ingredients of where we see the demand drivers, I think it gives us a lot of confidence to say that with this portfolio, we can drive a higher small-shop occupancy rate than we’ve ever experienced before.

And again, it’s because of that diversity of demand. Now, it’s going to be interesting if the economy really does get worse and there is a pullback. Some of the small shops that didn’t make it through COVID, I would say we’re still in a position where we’re backfilling those locations with higher credit, better operators. And so we — I think we’re starting from a higher-quality, higher credit portfolio of small shops today.

Operator: Thank you. And the next question comes from Haendel St. Juste with Mizuho.

Haendel St. Juste: Hi, good morning. So, Conor, I guess, we understand the timing of bad debt is one of the factors that can play a key role, a swing factor in how core growth plays out here in the next year or two. But I was hoping you guys could talk a little bit about the cadence for same-store NOI growth this year? And then, as you look ahead given the snow-related occupancy visibility and the demand that you’re seeing, what type of ballpark the same-store NOI growth, is that — could that get you to for next year. I think most of us see this as a long-term 2% to 2.5% same-store NOI business. Curious if you think you can tap the long-term average next year? Thanks.

Conor Flynn: Sure, thanks for the question. And I think when you look at, again, the fundamentals of our business, now there’s going to be some lumpiness obviously quarter-to-quarter, with the Bed Bath and maybe some of the other retailers that we’re watching, and how the auction process plays out, because that will really determine the lumpiness of how much NOI comes offline. But, I do believe, as I said earlier that the fundamentals of our business are quite strong and with virtually no new supply and very high retention rates, we should see, I think, a longer-term growth rate that’s above the historical average. And we’re also pushing for higher annual increases. When you look at the bumps we’re getting on our small shops, they are higher today than they were at the trailing four quarters.

The same goes with our anchors. They are higher today than they were in the trailing four quarters. And if you look back multiple years, they’ve have been trending higher. So that bodes well for obviously a fundamental re-rating of our growth rate going-forward. But there’s a lot of things that may or may not occur for that to happen. So it’s hard to extrapolate what the future is going to hold, but where we stand today, we’re very confident about the strategy we put in place and executing on that strategy is showing up in the internal growth rate, the pricing power that we have today. In terms of the cadence of the same-site, I’ll turn it over to Glenn.

Glenn Cohen: Yes. I mean, I think, if you look at bad debt component to it, again, we’re comping against bad debt income from last year – for the current year. So when you look forward, we really have a more normalized what we expect to be a more normalized bad debt level. So I think that that part at least should keep us in good shape to be able to grow the same-site NOI growth, really organically from the rent bumps that Conor was saying.

Operator: Thank you. And the next question comes from Anthony Powell with Barclays.

Anthony Powell: Hi, good morning. I guess, question on percentage rent. I saw that ticked up to close to $6 million in the quarter. Can I get a run-rate, and what’s really driving the growth in that segment?

Glenn Cohen: It’s a great question but some of it is timing. We’ve been very proactive on getting sales were puts out to tenants and the collections in the first quarter were higher than what we had originally budgeted, but some of those collections that came in, were from tenants that we had budgeted to be in the second quarter. So you’ll see it starts to dip down as we go through the year. So the first quarter is a little bit ahead of where the budget was.

Operator: Thank you. And the next question comes from Caitlin Burrows with Goldman Sachs.

Caitlin Burrows: Hi, good morning, everyone. Maybe just a follow-up on the small-shop side. I know there’s a concern that small-shop tenants may be more negatively impacted by tighter lending standards. So what are you hearing from them? Has there been any change in their ability to run their business? And then at the same time, do you have a breakdown of what portion of the small-shop tenants or actually small businesses versus larger national businesses that happened to operate in the small place?

Ross Cooper: Yes, it’s a great question and it’s something that we’re very closely monitoring, because we would anticipate that there would be the one that would be most impacted by the pullback of local and regional banks and their ability to lend. Right now we haven’t seen a material impact on, obviously, on the deal velocity. Hence, our Q1 numbers and those businesses ability to operate. But it’s something that we’re closely watching and monitoring through the course of this year to anticipate — see if there’s any cracks in the system. But right now, things are holding up pretty well.

Conor Flynn: And we do have a breakout at our Investor presentation of the small shops that are really more local versus really the national and regional players and we are heavily weighted towards the national and regional players. The only thing I would add is, we have a better communication than we’ve ever had with all of our retailers, primarily because of what the pandemic really forced a lot of us to do, which was again, have constant dialog with our retailer partners. And handling the PPP program as we did, gaining access to our small shops and the way we have, given them the opportunity to access capital in times of need. I think we have very close ties now with our partners and our retailers that we believe will hopefully be able to weather this next storm.

Operator: And our next question comes from Ki Bin Kim with Truist.

Ki Bin Kim: Thanks, good morning. Two questions. First, I noticed that you guys started the development on Coulter Place. Looks like it’s a preferred equity investment with the Bozzuto Group. I was just curious if you can provide some more color on the structured pricing and if the income from that preferred equity investment is based on the dollar they put to work or is it all upfront. And second question, going back to Bed Bath & Beyond, I guess what is part of your thinking in your budget? Are you assuming that they all eventually shut-down and you get it back or — I was just curious about how that configures your budget?

Ross Cooper: Yes, I’ll take the first one on Coulter. So yes, the Coulter project is our first multifamily activation in our preferred equity structure. As for this up, you’ll see that the gross cost yield for that investment will be approximately 5% to 6%, which is consistent with what you’d see historically as multifamily projects developing towards. As a result of our preferred equity structure though, we are able to contribute the land as well as our pursue cost in a preferred yield. And blended together with some additional contribution to common equity, we’re able to achieve a yield that exceeds our current cost of capital, which makes it accretive to us and hit that low-double-digit return that we’re looking for. So right now we’re excited. Bozzuto is one of our partner, very-very qualified and established player in the business. And it’s a great property. So it’s a good first effort on this structure.

Conor Flynn: On the Bed Bath question, we are anticipating getting them all back. I think that’s the better way to budget as to just not anticipate anything being sold in the auction process and having the associated downtime and leasing costs with these box. So I think that again is incorporated in our budget and in our guidance.

Operator: Thank you. And our next question comes from Greg McGinniss with Scotiabank.

Greg McGinniss: Thanks. Two-parter here as well. First, Ross, apologies if I missed this, but could you discuss the cap rates achieved on the acquisitions and dispositions this quarter. And then for the follow-up on cost of capital, are you willing to use the low cost Albertsons cash to offer lower cap rates to sellers and potentially get them off the sidelines or how are you thinking about your cost of capital and targeted investment yields?

Ross Cooper: Sure. I didn’t mention that, but I’m happy to address that. The acquisition cap rate on the grocery-anchored centers that we acquired in Southern California were lending right to around 6%. And when you look at the spread on the dispositions, it was about 150 basis point spread. So that’s really the year one cap rate. What we’re most focused on is what the growth profile of those assets are. You find them up compared to each other. So we see outsized growth. From the grocery-anchored center that we acquired, whereas the power centers that we sold would either be flat or even potentially moving negative. So that’s really the focus, thinking about recycling into — high-quality grocery-anchored centers versus the power centers that we sold.

In terms of the low cost of capital from the Albertsons, I mean, it’s a great position to be in. Obviously the hurdles are a little bit lower from the Albertsons capital that was achieving around a 2% dividend yield. Now that being said, it really is a balance for us between trying to move aggressively and put the capital work and being patient for opportunities that we expect will present themselves here in the back half of the year. So we’re not looking to necessarily overpay or set the market just to get people off the sidelines. But we can move very aggressively and quickly if opportunities present themselves that we would really like. So it gives us a lot of flexibility with liquidity position that we have.

Operator: Thank you. And the next question comes from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem: Hi, just one quick question and a follow-up. So the first is just on capital allocation priorities. Can you just remind me how you guys are thinking about stack ranking? Is it sort of acquisitions in the fixed range? Is that some of the structured investments given tightening lending conditions? What sort of makes the most sense right now? If you could sort of flip though on, what would you ramp-up on? And then the follow-up question is sort of a related Bed Bath & Beyond question, but it seems like you guys are sort of ahead of that 15% and 20% mark-to-market, really interesting. But as we think about sort of what’s coming down the line, what’s coming next, Party City and things like that, you just compare contrast how you guys are thinking about that box size, mark-to-market demand, anything would be sort of helpful, so we can get a sense what that potentially could look like?

Glenn Cohen: Sure, so on capital allocation priorities, one, two and three, we always say are leasing, leasing, leasing. So you start there and obviously, the fundamentals of our business continue to shine. Followed by that the highest return for us for these smaller redevelopments where we can activate parking lots and create a pad parcel or expand in existing shopping center, that was typically yield in the double-digit range, and so we like to activate those as many as possible. We typically run the range of $80 million to $90 million a year so of those projects and we’re looking through the portfolio to try and generate more of those unique opportunities. After that, typically as a blend, the structured investment program as well as core opportunities, as well as the preferred equity and then the mixed-use redevelopment, put essentially.

You look at the suite of opportunities there and you try and make sure you blend to a cost of capital that obviously reflects where we are today. We are in a unique position, where we have a lot of Albertsons capital to deploy. But as Ross mentioned, we’re continuing to be patient there and look for those flat pitch that unique opportunity to really take advantage of dislocation and we’ve done it before and we’ll do it again and we continue to think we’re well-positioned to be opportunistic there.

Operator: Thank you.

Ross Cooper: Sorry, Repeat the question of the Bed Bath.

Conor Flynn: It was related to the other tenants coming down Party City and their box size.

Glenn Cohen: Sure, sorry. Party City, in terms of box size, 12,000 to 14,000 square feet. Right now we don’t anticipate — none of them have been rejected. So we are we’re in pretty good shape there. And then with Tuesday morning and David’s bridal, Tuesday morning, is a similar in size. David’s bridal is smaller in nature, more on that under 10,000 square feet.

Operator: Thank you. And the next question comes from Linda Tsai with Jefferies.

Linda Tsai: Yes, hi, sorry, if I missed it earlier. How much of your full year credit-loss expectation of 75 to a 125 basis-points was realized in 1Q.

Conor Flynn: So the credit loss for the first quarter was around 95 basis points. Again, in-line with where guidance is. And it accounts for the impact of the bad debts that we had Party City’s and some of David’s Bridal.

Operator: Thank you. And the next question comes from Craig Schmidt with Bank of America.

Craig Schmidt: Thank you. Looking at the operating goals for mixed-use, I guess I was surprised that wasn’t going to grow a little bit more from the 13% to 15%, given the added multifamily resi units you’re projecting. And then as you get past that 2025 goal, may you accelerate the mixed-use redevelopment? I mean, you have a pretty extensive list of things you have that you’re pursuing entitlements and future projects.

Conor Flynn: Yes, it is good question, Craig. Obviously we’ve ramped program from virtually zero to where it is today in the last three to four years. So we have seen continued growth in the mixed-use platform and we like the fundamentals of really how they drive value to each other. The retail really drives value to the residential and the apartments because of the amenity base that it provides. And the apartments drive a lot of value to the retail because you have a built-in shopper base and the traffic patterns continue to uptick there. So it is one that will continue to monitor. We did activate a project this quarter as you saw. We like the opportunity to activate our CapEx light structure. So again, it doesn’t weigh down our growth opportunities.

We have a select few that are still active right now on-the-ground lease that are be stabilizing later this year. The same goes for the Milton at Pentagon is about to open here and we’re excited about suburban square having a mixed-use component with the residential there. We think we can really hopefully drive a lot of value there. Going-forward, we’ll continue to obviously hopefully crush that goal of 15% from mixed-use and then reevaluate the next really the master plan for each asset and how much we can ramp that again using a CapEx light structure where we can showcase the growth of the underlying portfolio and still create value for our shareholders longer-term.

Operator: Thank you. And the next question comes from Alex Barron with Baird.

Alex Barron: Hello, thank you for taking my question. So quick question on the plans to use the pretty big cash position has been built-up, should we expect that large cash position and balance be there throughout the year or at least until the potential special dividends. What’s the plan there.

Conor Flynn: Yes, so the plan is really to be opportunistic. And again, we’re going to be patient, if the opportunity doesn’t present itself and we’re very comfortable maintaining the cash position until it does, but in the interim, we’re having lots of conversations with all of our JV partners, talking to a lot of brokers and owners that may need capital as the year progresses. So to the extent that we can utilize that capital accretively. We’re very comfortable doing so. Otherwise, but just we for the right opportunities.

Operator: Thank you. And the next question comes from Mike Mueller with JPMorgan.

Mike Mueller: Yes, hi, two quick ones here. First how diversified is the pool of tenants that you’re talking to you for the Bed Bath releases and then is it safe to say that you’re largely finished with the Albertsons monetization this year?

Conor Flynn: Yes. I’ll do the Albertsons first. With both transactions that we did one in March, one in April, we are done for the year. So those proceeds and the gains from them are about as much as we can do including the special dividend that we receive relative to our gross income. So we will hold onto the shares for the remainder of the year and then look for further monetization in 2024.

Glenn Cohen: Yes, in terms of the diversity, it is a healthy and diverse pool. You have your usual suspects, obviously in the off-price category, rose your interest, furniture, fitness, entertainment uses. And then within each of those categories, you’re getting a variety of names as well. So it’s nice to see that type of diversity for these boxes.

Conor Flynn: Mike, one thing to keep in mind too is, there are some — with the off-price wars that are going on right now and they have a lot of demand for new space, you could see some of them being very aggressive in the auction process because of the unique attributes of the Bed Bath leases which would allow them to get into centers that they may previously not be allowed to because of use per head – used provisions. So it’ll be interesting to watch what happens there.

Operator: Thank you. And the next question is a follow-up from Linda Tsai with Jefferies.

Linda Tsai: I just a follow-up on the off-price wars. Are you seeing rental rate increases result from the off-pricers competing with each other?

Conor Flynn: Yes. I mean, when you have more than one bidder at the table that creates a competitive environment. So obviously – and as a result of that, you can see some price increases on rent for boxes.

Operator: Yes, thank you. That was all the-time we have for today’s question-and-answer session. I would like to turn the floor back over to management for closing comments.

Conor Flynn: Thank you very much for joining the call today. Enjoy the rest of your day.

Operator: Thank you, and thank you for attending today’s presentation. You may now disconnect your lines.