Kimco Realty Corporation (KIM) — Q1 2019 Earnings Call Transcript

Good morning, and thank you for joining Kimco's first quarter 2019 earnings call. Joining me on the call are Conor Flynn, our Chief Executive Officer; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, Kimco's CFO; Dave Jamieson, our Chief Operating Officer; as well as other members of our executive team that are present and available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward-looking, and it's important to note that the 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 on the Investor Relations website. And with that, I'm turning the call over to Conor.

Thanks, Dave, and good morning everyone. Today I'll briefly discuss the current shopping center environment and how Kimco's strategy is designed to meet today's challenges and create a growth platform going forward. I will then touch on some of our Q1 highlights and describe the remarkable progress we're making on our Signature Series assets. Ross will follow with a review of our Q1 transaction activity and then discuss the current transaction market and our investment outlook. In the retail real estate space, we anticipate store optimization plans to continue as underperforming locations will likely not survive the new world order of retail Darwinism. At the same time, however, we see strong demand for new stores with particular strength in off-price beauty, fitness, restaurants, medical, and services. We track store openings across the country, and by our count, the number of 2019 openings has exceeded 5,500, more than double the widely reported numbers in the media. We also anticipate that the buy online pick up in-store phenomenon will grow at a significant rate, placing more value on physical locations that can adapt and drive even more profitability. The ICSC halo effect report is clear evidence of how important physical retail is to e-commerce growth. According to the report, opening a physical store has shown a significant increase in web traffic for the retailer in that market, and conversely, traffic drops off when retailers close stores. We have positioned ourselves to take advantage of and withstand the vicissitudes of the retail real estate environment. Our assets are concentrated in high-quality markets with high barriers to entry, and anchored by profitable high-volume stores. These are the locations where retailers want to be and will invest heavily to integrate e-commerce with their physical footprint. And talking to our retailer partners, we have consistently heard that there is no lack of available retail space on the market, but there is a lack of high-quality retail space. Our quality locations, below-market leases, and the diversity of our tenant base give us tremendous flexibility and sustaining power to navigate the current environment. The new age of retail is evolving rapidly, but we are focused on staying ahead of the curve and finding the right real estate to unlock embedded growth. Now to the highlights, we are off to a good start this year with our portfolio producing stronger-than-anticipated growth. Our first quarter same-store NOI increased 3.7%, and for the first time in over 10 years, our occupancy climbed in Q1 by 20 basis points. Higher retention and higher leasing volumes drove the outperformance. New deals with Target, Old Navy, Ulta, Burlington, Ross, Five Below, and many others illustrate that our portfolio caters to the successful and growing concepts in the retail world today. Our team executed on a disposition plan in 2017 and 2018 to address the lowest tranche of the portfolio. Since the drag from the portfolio has been removed, our quality and our growth are starting to shine through. Our priority this year is focused on completing and opening the balance of our Signature Series portfolio. We are reaching the final stages of a multi-year investment program that will start to generate significant cash flow to the portfolio. We are on track to deliver $16 million to $18 million of incremental NOI this year that will drive our EBITDA and FFO, increase our free cash flow, and strengthen our dividend coverage ratio. Some highlights from Q1 include the opening of Lowes at Mill Station, TJMaxx and Hobby Lobby at Dania Pointe, and the commencement of the residential ground lease at Dania Pointe Phase II. In addition to this, we are also on schedule to deliver this summer, The Witmer, a 440-unit residential tower at our Pentagon Centre, which is across the street from Amazon's planned HQ2 in Arlington, Virginia. As we keep an eye towards the future, we continue to make substantial progress with our mixed-use platform. To date, we have a total of 4,300 residential units and 550 hotel keys entitled under construction or open and operating. With respect to the entitlements, we are creating a multi-year runway of future investment opportunities that we can activate at our discretion. Over the long term, this will change the growth profile and quality of our largest NOI contributors. Glenn will go into more detail, but our balance sheet remains strong, affording us both the flexibility to grow and protection to withstand any bumps in the road. In the end, for us, it is all about quality assets and strong leasing and as Q1 shows, the organic growth of our high-quality portfolio continues to improve. Our team is committed to staying the course and producing solid results. Finally, I would like to thank Joe Grills, outgoing Chairman of the Executive Compensation Committee, and Dick Dooley, outgoing Lead Director and Chairman of the nominating and corporate governance committee, for their long and devoted service to the board. In addition to their extraordinary leadership, commitment to Kimco, and the many contributions that they have made over the years, these two gentlemen have always conducted themselves in a thoughtful and professional manner characterized by integrity, civility, and honesty. They have set a high and enduring standard for our board members and leave behind a lasting legacy.

Thank you, Conor, and good morning. The first quarter of the year went according to plan with only a modest level of transactions taking place. Following the heavy transformation activity we undertook in 2017 and 2018, we're extremely excited about the current portfolio, and the results for the quarter showcased that the improvement in quality is paying off. We sold seven assets so far this year with gross proceeds of approximately $102 million and $85 million of Kimco's share. We expect the disposition volume to be similar in the second quarter, with the majority of our transaction activity completed by the middle of the year. We remain confident in our range of net disposition activity of $200 million to $300 million for the year. Two highlights for the quarter were the sale of our last Fione shopping center asset in Missouri and a property in Palm Beach Gardens, Florida. The Palm Beach Gardens sale is an example of our disciplined approach to capital allocation when evaluating mixed-use redevelopment opportunities. Palm Beach Gardens was a site that was being considered for additional density and after receiving an offer from an aggressive buyer, we did a deep evaluation of either a self-development scenario, joint venture, or ground lease approach. We concluded that the most accretive and best value creation proposition was an outright sale of the site. The first quarter asset sales produced a blended sub 7% average cap rate on in-place NOI driven by the sale of our Arboretum Crossing asset, which had a vacant former Toys R Us box at the time of closing. Given the execution in Q1 and expectation for pricing on the remainder of the sales in 2019, we anticipate the blended average cap rates for the full year of sales to be in the 7% to 7.75% range, an improvement over our prior expectation of 7.5% to 8%. On the acquisitions front, last quarter we announced the $31 million sale-leaseback transaction with Albertsons to acquire the unowned grocery anchors at three of our Tier-1 West Coast assets. There were no additional acquisitions completed so far this year. While we continue to evaluate opportunities to strategically and accretively enhance the existing portfolio, our main focus is on internal growth with the Signature Series development and redevelopment program, which is progressing at a very exciting pace. I'll now pass it off to Glenn for a deeper dive into the financial results.

Thanks from us, and good morning. Our execution in the first quarter of 2019 has generated increased occupancy, strong same-site NOI growth, and significant progress on our development and redevelopment projects. Now, before I discuss the details of our first quarter, I want to bring to your attention the change in how we report NAREIT FFO. In accordance with the NAREIT FFO definition restatement, we've elected to exclude gains and losses from land sales, marketable securities, and preferred equity investment transactions. We will present prior periods to conform to this election. Please keep in mind that these transactional items were previously excluded from FFO as adjusted, and therefore, have no impact on that calculation. Now for some color on the first quarter results, NAREIT FFO was $0.38 per diluted share for the first quarter of 2019, the same level as Q1 2018. The current quarter includes the receipt of $1 million of insurance proceeds related to our Puerto Rico portfolio that was in excess of the property basis. Last year's first quarter included $4.3 million of gain on forgiveness of debt. Both of these amounts have been excluded from FFO as adjusted. FFO as adjusted, or recurring FFO, was $157.4 million for the first quarter of 2019 as compared to $157.8 million for the same period last year, resulting in $0.37 per diluted share for each quarter. Our first-quarter results benefited from lower interest expense of $6.3 million due to the lower debt levels, while G&A expense was higher by $4.1 million, primarily from lower internal leasing and legal capitalization resulting from the adoption of the new lease accounting standard Topic 842. We also had a $1 million decrease in NOI, which is remarkable since we lost $20 million of NOI from the $1 billion of dispositions we completed over the past 15 months. Offsetting the NOI reduction from these sales was $7.7 million of organic growth from the same-site pool and $3.5 million incremental contribution from our development projects. There were also higher lease termination fees of $3.8 million and higher straight-line rental income and recapture of below-market rents during the quarter. For the rest of 2019, we don't have any additional lease termination fees in our full-year guidance and expect the gap items of straight-line rent and above and below market rents to revert to more normalized levels. Our transformed operating portfolio continues to produce positive results. Pro-rata occupancy increased to 96%, up 20 basis points from year-end as tenant vacates were lower than anticipated. Pro-rata anchor occupancy is 97.8%, up 40 basis points from year-end and small shop occupancy is 90.6%, down 50 basis points from year-end due to the seasonal vacates there for the holiday season, but up 100 basis points over the year-ago quarter. Due to the tremendous effort by our team, pro-rata leasing spreads continued a strong performance with first-quarter 2019 new leasing spreads increasing 17.4%. Renewals and options also grew by 7.1% with our combined pro-rata leasing spreads up overall by 8.9%. Same-site NOI growth was positive 3.7% for the first quarter of 2019 versus a comp of 2.5% last year, primarily driven by increases in minimum rent contributing 320 basis points and other revenues up 80 basis points which includes 40 basis points from the Mattress Firm leases previously rejected. Offsetting these increases in same-site NOI growth are modestly higher credit losses, negative 10 basis points, and lower operating expense recoveries, negative 20 basis points. Turning to the balance sheet, we finished the first quarter of 2019 with consolidated net debt to recurring EBITDA of 5.7 times, improving from the 6 times level at year-end. On a look-through basis, including pro-rata JV debt and perpetual preferred stock outstanding, the level is 7.2 times, improving from 7.5 times at year-end. Our liquidity position remains very strong with over $2 billion of immediate liquidity available and only $100 million outstanding on our $2.25 billion revolving credit facility. We have no debt maturities for the balance of 2019 and only minimal debt due in 2020. Our weighted average debt maturity profile now stands at 10.2 years, one of the longest in the REIT industry. Based on the solid first quarter results, we are reaffirming our NAREIT FFO and FFO as adjusted guidance range of $1.44 to $1.48 per diluted share. In addition, we are raising our full-year guidance range for same-site NOI growth from 1.5% to 2.5% to a new range of 1.75% to 2.5%. And with that, we'd be happy to take your questions.

Before we start the Q&A, I just want to offer a reminder that you may ask a question with a follow-up. If you have additional questions, you're more than welcome to rejoin the queue. And Adie, you could take our first caller.

Hey, good morning, guys. Really impressive same-store NOI this quarter, so one of the things that we had noticed was CapEx looked meaningfully higher than it was in prior quarters. So, I was wondering if you could maybe just give us some guidance about what drove that and how tenants are thinking about CapEx at this point as you have some pretty impressive leasing philosophy?

Sure. We appreciate it. This is Dave Jamieson. Our CapEx is elevated from the prior quarter, but it's also important to note that our rents have increased as it relates to the increasing costs as well as our weighted average term of our leases. When you look at this environment today, we are driving higher rents to offset that additional cost. The cost itself is really driven by the elevation of construction costs, hard costs and labor. So that's the trend that we've seen throughout the course of the industry. But when you tie it all together, our net effect of rent is actually improving. It improved over 5% relative to our total base rent this quarter, so the net effect is heading in the right direction as we had hoped. As we go forward, we continue to see the same situation occur. It's something that we always have to be mindful of, but that's really what the driver has been. But again, as I tie it all back together, our net effect of rent continues to improve quarter-over-quarter.

Got it. And so just to be clear, it sounds like most of the CapEx increases are coming from just construction costs and labor costs, and that's obviously a trend we've seen across other property types. So I just wanted to make sure that I understood that correctly?

Yes.

Yes. You got it.

Okay, great. I think that's my question and my one follow-up. Thanks, guys.

Good morning, guys. You did $37 million in the quarter for same-store, which is certainly strong, but you kept the guidance went up by 25 basis points, but you're suggesting some bit of deceleration in the coming quarters. Can you walk us through the trajectory of growth over the next few quarters, what are the pluses and minuses we need to think about to get you back to the midpoint of guidance? Thanks.

Sure. Samir, hi, it's Glenn. Again, we're very pleased obviously with the first quarter results where they came in, but it is still early in the year, and we want to just take a full assessment over the next 90 days as we look at guidance. I can tell you that we actually have stress tested our portfolio as we look at tenants that may have impact through the year, tenants that are actually on the watch list. And we feel very comfortable with our current guidance range and are comfortable toward the mid to upper end of that range. A few things to keep an eye on as we go through the quarter and through the rest of the year really would be the timing of rent commencements and what unexpected tenant fallout could have on same-site NOI growth. So we want to just take it slow, quarter-by-quarter and try to produce the numbers that we think will be well appreciated by the street.

Samir, I have one more follow-up, this is Dave Bujnicki. I just want to also keep in mind next quarter we do have a tough comp coming; we're on a 3.8%.

Okay. And I guess as a follow-up along your point, Dave, can you give us a sense as to how much of a dip we could see in the second quarter before seeing re-acceleration in the second half?

Again, it's Glenn. We're watching it closely. You know you could be somewhere in that 2% range in the second quarter.

Okay, great. Thanks, guys.

Hey, good morning. Just kind of sticking with that I assume for a little more detail on your expectations for store closings. Conor, you talked about the continuing store optimization that's going on and the expectations that it continues, so wondering what your outlook for the impact is to the portfolio and how that compares to where we started the year?

Yes. So far, obviously we're early in the year but so far so good. I mean when you look at our transformed portfolio, we get a sense that the retailers we have have strong-performing stores with us and they're reinvesting in those stores to integrate e-commerce. So we haven't really seen the fallout that we've seen in previous years and we continue to look towards the future of what the portfolio is going to look like and the best retailers and how we can backfill with those retailers. So when you look at our Toys R Us absorption there, we've been very aggressive in late leasing all 2017 of the 2018 boxes that we had and continue to see strong demand across the board for well-located retail real estate. And when you look at it quarter-by-quarter, we'll continue to monitor the retailers that are trying to reposition themselves for the new world of retail. But luckily, we have the right portfolio where we have a wave for some of these boxes that we will anticipate recapturing.

All right. And second one from me, just going back to the dispositions, were those included in your initial same-store pool and your outlook and therefore you did selling some of that the vacancy you mentioned the Toys, vacant Toys box and the repositioning going on, I think done in Palm Beach, did that help at all?

Yes. I mean the dispositions definitely do have an impact on the same site. We've budgeted for the certain assets so that it was all within expectation, specific to the Palm Beach Gardens site that really wouldn't have an impact on same site. That was a site that's been held for redevelopment for several years. And our NOI was essentially zero as we were keeping certain tenants in there in anticipation of the redevelopment. So Palm Beach Gardens didn't have any real impact on either same site or the cap rate range for this quarter.

Hey, guys. Good morning. Just regarding the small change that you made in same-store, why not change the FFO range as well. I guess the second half is still somewhat uncertain, which you talked about, the level of conservatism in there, but are there any other sort of offsets in FFO that we should be thinking about?

Not really, Christy. I mean again the first quarter had a few things in it that probably won't repeat as I mentioned in my prepared remarks. We did have an LPA in the first quarter. We don't have any further LPAs in the guidance and we did recapture a couple of leases that had below-market rents in them that were more outsized than normal. And we don't expect those to the balance of the year. So for right now, we're going to leave our guidance as is and again we did pump the lower end of the same site guidance.

Also the dispositions, Christy, are more front-end loaded to the beginning of the year. So that factors into it.

Okay. Got it. And then just Glenn, following up on the $16 million to $18 million of incremental NOI from redevelopment that you've been talking about, can you just provide a little bit more color or maybe an update on sort of the timing of that coming online? And can you remind us is that the annual NOI from those projects or is that the 2019 impact?

$16 million to $18 million is the incremental 2019 impact. And again, as I mentioned, for the first quarter, the incremental amount was about $3.5 million. So we're on track to achieve that $16 million to $18 million range.

Okay, got it.

And just the total, the total for those properties for the year is expected to be somewhere in the $25 million to $28 million range.

Hi. Good morning, guys. I'm curious based on operating results so far this year, if your internal expectation for bankruptcies or uncollectible revenue has evolved since initial guidance. And then looking at the watch list, it's clear that Kimco and peers have exposure to some, let's call them, less robust tenants with debt maturities in the 2021-2023 timeframe. So there's still some time to address, but I'm curious how you're handling those retailers as well.

Yes, it's a good question. I think when we look at our guidance so far this year, there has been less closures or less bankruptcies than we anticipated, and that has to do with some of the strength of the locations that we have. For example, when you look at the Sears Kmart portfolio that we have, they are only rejecting two of the leases with our switch, which obviously, as a quality spectrum shows that these are very high quality locations with below-market leases. We continue to see that the churn or the vacancy rate is slowing in our portfolio, and we continue to monitor that going forward as you saw our occupancy tick up in Q1 versus historical normal rates. So we'll continue to monitor that closely. And then when we look at our risk management tools, we're really focused on understanding the at-risk tenants in our portfolio, the mark-to-market of those leases and really work on really years ahead of time when those leases may come to fruition and how we can reposition that real estate. You continue to see I think our credit scores improve. I think we're the only peer that has the highest investment-grade tenants in our top 10. We continue to improve that. A lot of these retailers, these legacy retailers are in great locations with below-market leases, which actually is a good thing for us. When you look at the opportunities set going forward, we see that retailers are eager for these types of locations. And with very little to no new development on the horizon, we think we're in a good position to really capture the who's who of the retailers that are successfully implementing e-commerce into their physical brick and mortar, and we think we are on the right path to unlock that value.

Great. And then just as a follow-up here, I recognize there's still a lot of pipeline left to deliver and the expected development investment is going to fall next year and beyond, but how are you thinking about the future of Signature Series development and potential multi-family investment over the next few years?

It's a good question. I mean, in my prepared remarks I mentioned that we have over 4,000 apartment units entitled and we've continued to look on the right entitlement path of really ways to create value for our shareholders long term. Where our cost of capital sits today, we have taken the path where the lion's share of what we're doing to unlock value is through a ground lease to apartment developers that allows us to gain the mixed-use component, which drives traffic, it drives sales to our retail but not necessarily requires capital to fund it. So we continue to see that as a nice opportunity going forward in the portfolio. We do want to finish off our Signature Series of assets and continue to look towards the future to see when the next opportunity comes around where our cost of capital is and what is the best way to unlock that value? So you'll see our entitlement work continue but we will be very selective in terms of what we add to our pipeline going forward.

Hey, good morning, good morning out there. Just two questions, first on your capital plans, just given where we are in the cycle and that Albertsons the monetization of that seems to be at some point, are you guys obviously having a really good run year-to-date up 20%. You're not quite at consensus and maybe but you're not far. What about issuing equity one to de-lever? I know you guys don't include preferreds but with preferreds you guys are on the high side. And then two that way it starts to at least reduce the leverage question and hopefully you guys continue to grow which solves the dividend part of the equation as well so if you could just give thoughts?

Yes. Sure, thanks Alex. When you look at our capital plan, we have no need to issue equity at our current levels. We continue to see our discount to NAV be significant and our capital plan lays out a strategy where we can match funds from our dispositions to finish off our Signature Series developments and redevelopments. You have to remember the lion's share of the funding is already completed for most of these projects. And so we have to be patient to get the incremental NOI because that's what's going to reduce our FFO, our EBITDA, and help the dividend coverage towards the end of this year into 2020. I will continue to look at that and be a good capital allocator going forward. We also have no debt maturing really between now and 2021. So when you look at the levers we have, clearly you mentioned the preferreds. Now we do have some that are callable on our option, but that's the beauty of preferreds. They're callable at our options. So we'll look at that and see what is appropriate and we do want to improve the balance sheet long-term, but we are very, we're in a good position. We think we're well positioned going forward because of our liquidity position and because of our lack of near-term maturities and so when we look at the trajectory of the Signature Series NOI and where we see all these metrics moving forward. We feel very comfortable with where we are today and feel confident in the future of the company.

Okay. Regarding guidance, you've addressed several analysts' questions before, but even if you consider the early impact of dispositions, it doesn’t significantly affect your guidance or earnings. Are you being overly cautious due to past experiences in retail, or is there something changing in your watch list that's making you concerned about potential store closures or similar issues?

Alex, it's Glenn, I would just say the same thing you know, it's really in the year, we put out guidance based on what our budget was. We're happy with the results of the first quarter and we'll take it quarter by quarter and see how things go. I mean again we're still dealing in watching things closely with tenants on our watch list and we are very cautiously optimistic about where things are headed.

Thank you. I guess I'm focusing on the three sale leaseback transactions. Is that something you want to do more of and then what is the ultimate aim here?

Yes, I mean for those three particular assets, we feel very confident that we struck an attractive deal for us at a 6% cap rate on West Coast assets where the grocer was doing on average $775 a square foot in sales. We think that there was substantial value creation, particularly when you look at some of the comps on the West Coast in the 5s for similar type assets. We'll continue to evaluate those opportunities, both within the Albertsons banners as well as other retailers that are exploring opportunities to sell some of their own real estate. But again, it's going to be very selective, it's going to be strategic, and we want to also ensure that we keep any sort of tenant concentration in mind. And clearly, as I mentioned in the prepared remarks, the main focus for the spend this year is going to be on the internal growth of the Signature Series. So, where the opportunity presents itself, we will certainly pursue and transact, but it's going to be pretty limited.

Keep in mind, Craig, we own the small shops that were shadow-anchored by the grocery store. And so, when you combine the cap rates that we paid for the grocery store and then you combine that with the small shops, we see significant NAV improvements because really when you look at the grocery anchor comps that are out there today, we feel like we put the site back together and create a significant value.

Hey. Good morning, guys. I want to go back to the point made last year. You had highlighted six projects that could start over the next one to three years. This call you mentioned you may ground lease, lease projects, but will any of them start commencement or construction in the next year or so?

Again, is that our option, we have secured entitlements in a number of those projects. And once we get to the point where we're ready to make a decision, we'll go through our decision tree and see where our cost of capital is. We've always talked about the opportunities set say do we self-develop, do we contribute the land into a joint venture, do we ground lease or do we sell an asset. And so again, because of the opportunity within the portfolio and the immense entitlements that we've already secured, we feel like we're on the right path to really create a lot of value for our shareholders. And then each and every opportunity will be a unique decision, because no two sizes are alike, and we really have to weigh our cost of capital and where we want to put our capital to work. And so, it really will depend on the individual sites.

Hi, guys. It comes up every few quarters, just any updates you can share on your thinking with Albertsons, especially with their recent management change there?

Hi, good morning. I think I'm not sure if you are sure they had their year-end financials reported last year, and the company was on track with their goals, they had a couple of major goals for the past year where they met. One was to have $2.7 billion plus of EBITDA, they got about $2.74 billion. They also through the sale leaseback program reduced the debt on the balance sheet by over $1 billion. The last part of the program and it was announced with the earnings call was the appointment of new CEO to take the company to the next step. And I think the company is going in the right direction, doing all the right things. Hey listen, I think you look at what we've done with Albertsons over last few years, especially a lot of other private equity firms would have taken that sale leaseback money and made it distribution to the equity and hurt the company. And we're really focused on improving this company, bringing to the best shape it can be that way at the right time when the equity markets are there, we can't achieve the best value for everyone.

Thanks. And then the entitlement process has come up a little bit, can you just talk about any changes that you might be seeing there in terms of process, or the amounts of time to get approvals for larger developments or even for backfill opportunities?

I think the entitlements are always unique to the municipality that you're dealing with. I think the nice part about Kimco is that we're long-term holders and we forge these partnerships with these municipalities knowing that we are going to be here for the long term. Most developers secure entitlements and then flip it the next day. And so we take a very different approach with these municipalities knowing that we are going to be here for the long haul and forge partnerships and making sure that they feel comfortable with our approach. And we have seen success recently with a number of our projects and we'll continue to focus on the portfolio of the future. And we feel really that we're just scratching the surface. We're in the first inning of our entitlement process and it's always amazing to think that in a short period of time, we've already secured over 4,000 apartment units.

Yes. Hi. I guess the two questions are, one can you talk a little bit about our residential leasing trends at recent projects and then with the sharp occupancy over 90%, I think it's 90.6%, how much more room do you have to move that out?

Yes. So, on the residential side with Lincoln Square that's our project and center sitting. As you could see in our sub this quarter, it was substantially, it went down from sub-38% to sub-55%. We have 177 units leased as of the end of this last quarter and we're just moving into the high season now, so we're expecting to see that trend accelerate through the spring and summer as new people are moving into the city, looking for new jobs and also from the University side. So we'll expect to see an acceleration through the balance of this year as it relates to the small shop side, what we saw was our typical seasonal turnover. Now, the turnover here was about 50 basis points down from prior quarters. We had a number of tenants out there that extended, who rolled over through the holiday season and into January. So we actually had, I'd say slightly better than what we had originally assumed as a result of Q1 and the small shops side continues to be very, very strong. Health and Wellness is very popular, food and beverage obviously is strong and we expect to see that through the balance of the year.

Okay. What would you consider to be full in terms of small shop occupancy? Is it 92%, somewhere in there?

Previous our all-time high was 90% and we've eclipsed that by hitting over 91% last year. So obviously, we're trending into new territory here. We think we can push northwards of those numbers. So we'll have to stay tuned and see how hard we can push it. Obviously, we see the upside in the portfolio in the small shop space, but we also have a lot of momentum building on the remaining boxes in the anchor space. So it's nice to see that we have a really dominant portfolio that's really starting to trend in the right direction.

Yes, hi. What drove the spike in higher above and below market revenues?

Sure. It's Glenn. So we had two leases that we recaptured. One was a grocery tenant and one was a JCPenney. One of the boxes is already leased; they come from again the 141 analysis that's done when you acquire the assets. Both of these leases were significantly below market. And when we recapture the box you take the below market rent into income. So the total for those two was around $5 million.

So you would expect that to kind of normalize in the upcoming quarters for the remainder of the year?

Correct. When we look in total at like our straight-line rent and our above and below market rents, those two categories together on a normalized basis that are around a total of about $7 million, $8 million a quarter.

Thanks. And then in terms of the decline in lower disposition cap rates, do you think that's more a function of the composition of the assets you're selling or a function of improving cap rates across the board for the markets you're selling in?

Yes, I think it's a combination of both of those factors, and there are a few other things that I look at when evaluating our disposition program and the success that we've had thus far. I think first and foremost is clearly improved portfolio. And when you look at the quality of even the Tier 2 assets that we're selling, they're much improved compared to years past. So the subset of assets in the pool is much better. The limited volume that we're doing allows us to be more optimistic with the asset that we're selling. So Palm Beach Gardens was an example that I gave in the prepared remarks where that was one that wasn't necessarily expected for Q1 this year, but we took advantage of an opportunity and an offer and struck with that one. The other one that was mentioned in the transaction lease was Arboretum in Austin, which is a good market. It's a solid asset but it was one where a buyer came along that had a vision for the site that included a redevelopment of the asset that at a price that they offered was well beyond what we felt that we could create in terms of a risk-adjusted return and ultimately decided that selling it was the best course of action. I think also when you look at capital formations in retail, we've had limited supply compared to 2017 and 2018 where more of our peers and ourselves had much bigger volumes of dispositions, so the limited amount of supply in the market has helped keep pricing in check. And finally, I would say that interest rates clearly remaining low and in our favor have helped our buyers make stronger offers and that continues to be readily available for our buyers. So I think all those factors have really contributed to our ability to push pricing and have strong execution on the dispo program.

Hi. Good morning, guys. I'm curious based on operating results so far this year, if your internal expectations for bankruptcies or uncollectible revenue has evolved since initial guidance.

Yes, it's a good question. Again, it falls into the category of retail in the evolving environment. We are seeing significant demand for our assets, and as I mentioned early on, it is our quality portfolio that's driving that interest.

Yes. Hi. Just asking you about your overall credit quality of your tenants. Any new surprises in terms of bankruptcies that you didn't expect? Or do you still feel that you're in a pretty good spot?

We're still in a good position. The high quality of our portfolio has kept us insulated from a lot of the issues that have faced the industry. We continue to monitor closely but we remain optimistic.

Thank you for participating in our call today. I'm available to answer any follow-up questions you may have. I hope you enjoy the rest of the day.