Kimco Realty Corporation (KIM) — Q4 2019 Earnings Call Transcript

Good morning, and thank you for joining Kimco's Fourth Quarter 2019 Earnings Call. Joining me on the call today are Conor Flynn, Kimco's CEO; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, our 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 course of this 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 certain references to 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 the Investor Relations website. With that, I'm going to turn the call over to Conor.

Thanks, Dave, and good morning, everyone. As we begin the final year of our 2020 Vision strategy, our 2019 results are particularly satisfying. These results reflect both our commitment to our plans and our determination to stay the course. We finished 2019 with strong operating metrics, an improved balance sheet, a higher quality portfolio and a development and redevelopment pipeline that continues to produce long-term growth. I will begin today's remarks with an overview of our operating metrics, our view of the retail landscape and an update on our Signature Series development and redevelopment projects and a view into how we think about ESG and our efforts. Ross will follow with an update on transaction activity and observations on general market conditions. And Glenn will discuss our activity in the capital markets, balance sheet metrics and our 2020 guidance. The repositioning of our core portfolio within top 20 markets where we see a favorable supply and demand dynamic continues to pay dividends. The team produced strong metrics across the board, with $1.44 NAREIT FFO per share and $1.47 FFO per share as adjusted for the year, a great result. We achieved 3% same-site NOI growth for the year, exceeding the high end of our guidance range for the year. Our occupancy remains at an all-time high, finishing the year at 96.4%. Anchor occupancy hit a new high at 98.9%, while small shop occupancy finished slightly down at 89.3% due to recent closings of Dress Barn and Charming Charlie. Activity on our small shop vacancy remains strong, and we view this as a source of FFO growth for 2020. The spread of physical economic occupancy sits at 240 basis points, which is primarily the result of anchor boxes yet to open. Typically, once the anchor becomes activated, the small shops usually follow, driving higher rents and strong annual increases. Our spreads for the quarter were healthy, with new leasing spreads at 12.5% and renewals and options at 4%. The increase in spreads for new leases represents the 24th consecutive quarter in which spreads increased over 10%. Our positive spreads for the year of 20.8% for new deals and 5.4% for renewals and options highlight the mark-to-market opportunities embedded in our portfolio. Our intensive asset management platform and investment in technology have enabled us to be more proactive in monitoring and quickly addressing existing and potential vacancies, reducing downtime and driving faster rent commencement fees. While our portfolio continues to perform in this era of retail Darwinism, we recognize the challenges confronting our sector and some of our legacy retailers. We see our customers continue to gravitate towards convenience, service, experience and value. Not all retailers will successfully make the pivot necessary to service the demands of today's consumer. Bankruptcies, store optimization plans, downsizing, store saturation, automated distribution facilities and e-commerce penetration are all risks we must acknowledge and face head-on. Our 2020 Vision strategic plan was designed with these challenges in mind. Our tightly clustered portfolio in the top markets, where we have efficiencies of scale and significant barriers to entry, our mixed-use platform, our tremendous access to capital and our world-class team put us in a great position to embrace the inevitable change and create significant long-term shareholder value. Our Signature Series pipeline continues to produce large quality flagship assets with stronger NOI and higher growth. We believe we have elevated the Kimco brand with customers and in the communities we serve. Our focus on long-term value creation, together with our commitment to sustainability, has helped establish trust with local governments and community groups in which in turn helps us with our master planning and entitlement processes. We now have entitlements for over 4,500 apartment units, over 800 hotel keys, over 1.2 million square feet of office space, and we are only just getting started. We believe our investment in developing a mixed-use team second to none has created a platform premium that will allow us to develop an optimal plan for every asset in our portfolio and to acquire assets with untapped redevelopment potential. Retail will always be the driving force of Kimco, but recognizing the untapped potential of our asset base is a critical and defining aspect of our strategy going forward. At the end of 2019, we placed Mill Station into service, and out of the gate, our anchors were exceeding pro forma sales. Dania Pointe is making enormous strides where we recently cut the ribbon for the groundbreaking of Spirit Airlines' new headquarters. Spirit will be investing over $250 million and bringing over 1,000 employees to the site where they will enjoy the campus feel of our amenities and retail offerings. The Boulevard is also moving closer to activation as our first tenants plan to open later this year. We will also be activating the second residential tower at our Pentagon City national landing asset later in 2020 as we look to benefit from the Amazon HQ effect in the area. The residential leasing records we set at Witmer, our first residential tower at Pentagon, highlights this one-of-a-kind asset. And with entitlements for nearly 2 million additional square feet, Pentagon will continue to create value for years to come. In closing, our 2020 Vision strategy was primarily focused on our portfolio quality and balance sheet strength. As we continue to move forward in 2020 and beyond, the challenges we face are not limited to the changing nature of retail and real estate. To be the best, we need to continue to listen to all of our stakeholders and the issues that concern them. We need to be vigilant and responsive to issues impacting corporate governance practices, board diversity and refreshment, director skill sets, shareholder engagement and sustainability. While we have already made large strides in all of these areas, we can do more. Of particular note, our recent NAREIT award as Leader in the Light, given to the ESG leader in all of retail real estate is something we are proud of and don't take for granted. It shines a light on all of our efforts in making Kimco such a special place.

Thank you, Conor, and good morning. Our 2019 transaction activity, which we reported earlier this month, reflects another excellent year of execution and the redeployment of capital into our future growth opportunities. To recap, for the full year, we sold 32 properties for a gross value of $542 million with $375 million as Kimco's respective share. Factoring in the acquisition of the 3 grocery stores through a sale-leaseback transaction in January of 2019, our net shopping center dispositions were $341 million. Of note, a significant portion of the sales activity occurred in the fourth quarter as we accelerated several asset sales that were originally slated for a 2020 closing. We had a total of 12 properties on the market for sale in the second half of the year, and we closed 100% of them. Our transaction success reflects both our dedicated team and the quality of our upgraded portfolio. As a result of the dispositions completed in 2019, we now own a portfolio of 409 shopping centers, tightly concentrated in our top 20 markets with substantial growth potential and densification opportunities that will continue to strengthen our asset base for years to come. Now to our outlook for 2020. We intend to continue selling at a modest level, pruning between $200 million to $300 million of operating properties at Kimco's share. We anticipate cap rates to blend in the 7% to 7.5% range. Proceeds from the sales will help fund our Signature Series redevelopment program and potential acquisition opportunities within our targeted markets. As for the latter, we intend to go back on offense in 2020 and selectively add properties that fit our strategy. We plan to acquire between $100 million to $200 million of assets with cap rates in the 5% to 6% range. We have demonstrated our disciplined approach over the past several years with no new shopping center acquisitions since the summer of 2017. With our reshaped portfolio and improved cost of capital, we believe it is the appropriate time for us to selectively acquire high-quality properties, which offer future value creation potential when the opportunity presents itself. While these are hard to find, we have already identified one particularly exciting asset that we're currently evaluating and hope to share additional details with you in the second quarter. As for market activity generally, cap rates continue to be aggressive for institutional quality assets in our core markets. We saw transactions in California, Texas, Florida and Pennsylvania in the high 4s and low 5s in the fourth quarter. And with interest rates remaining at their current low levels, there is no shortage of investor capital, both debt and equity, interested in pursuing our product type. We look forward to building additional long-term value as we move through 2020. And now to Glenn for the financial results.

Thanks, Ross, and good morning. We finished 2019 with strong fourth quarter operating results. We maintained our occupancy level at an all-time high, delivered another quarter of double-digit new leasing spreads and generated positive same-site NOI growth. In addition, we further fortified our balance sheet with the issuance of common equity utilizing our ATM program. As a reminder, in connection with the NAREIT FFO definition clarification, we no longer include gains and losses from land sales, marketable securities and preferred equity investments in NAREIT FFO. We are presenting prior periods to conform with this election. These transactional items were already excluded from FFO as adjusted and therefore have no impact on that calculation. Also, as previously communicated, beginning this year, we will only be reporting on NAREIT FFO, and in the event we have a unique transactional gain or charge, we will be sure to point it out. Now for some additional color on our fourth quarter results. NAREIT FFO was $151.9 million or $0.36 per diluted share for the fourth quarter 2019 as compared to $149.6 million or $0.36 per diluted share for the fourth quarter 2018. Net transactional charges for the fourth quarter 2019 totaled $3.4 million or $0.01 per diluted share, comprised of $7.2 million of preferred stock redemption charges, offset by $3.8 million of transactional income from Puerto Rico insurance claims and forgiveness of debt. NAREIT FFO for the fourth quarter 2018 included $2.2 million of net transactional income. FFO as adjusted, which excludes transactional income and expenses and nonoperating impairments, was $0.37 per diluted share for the fourth quarter of 2019 as compared to $0.35 per diluted share for the same period last year. The primary drivers of the increase were higher NOI of $3.1 million, lower financing costs of $2.2 million and higher management fees from increased leasing activity. Full year 2019 NAREIT FFO was $1.44 per diluted share and includes $11.7 million or $0.03 per share of net transactional expense primarily from $18.5 million of preferred stock redemption charges. Full year 2019 FFO as adjusted came in at $620.1 million or $1.47 per diluted share, which hit the upper end of our guidance range. Full year 2018 FFO as adjusted was $613 million or $1.45 per diluted share. The primary drivers of the increase were lower financing costs of $13.2 million, lower income tax expense and higher management fee income. The full year increase was further impacted by lower NOI of about $9 million attributable to the full year impact of 2018 and 2019 dispositions and higher G&A expense resulting from the lease accounting change and the effect of no longer capitalizing indirect leasing costs. Our high-quality property portfolio continues to produce positive results. During the fourth quarter, we signed 263 leases totaling 1.4 million square feet at a weighted average ABR of $18.63 per square foot, further improving our pro rata portfolio ABR to $17.99 per square foot. Our year-end occupancy held steady at an all-time high, up 60 basis points from the beginning of the year. This increase was driven by positive net absorption and the positive impact from dispositions. Rental spreads for new leases, options and renewals signed were positive 6% for the fourth quarter and positive 7.9% for the full year 2019. Same-site NOI growth was positive 2.7% for the fourth quarter 2019 and includes 10 basis points from redevelopments. Full year 2019 same-site NOI growth was positive 3% with no impact from redevelopment activity. The primary drivers of the same-site NOI growth were increases in minimum rents from continued lease-up, contractual rent bumps and rent commencement starts. Our same-site leased occupancy stands at 96.4%, and same-site economic occupancy is 94%, which bodes well for continued same-site NOI growth. Turning to the balance sheet. We were active again in the capital markets. We utilized our ATM program opportunistically to issue 9.5 million shares of common stock at a weighted average net price of $21.03 per share, raising over $200 million. We used the proceeds to redeem $225 million of 5.5% preferred stock. As a result, we reduced our look-through net debt-to-EBITDA by 0.3x to a level of 7.2x and reduced our fixed charges by $12.4 million annually. We remain focused on reducing look-through net debt-to-EBITDA further over time. Our liquidity position is excellent with over $2 billion of immediate liquidity available. Our debt maturities for 2020 are quite manageable with only $90 million of consolidated mortgage debt due and approximately $150 million due in our joint ventures. Our weighted average debt maturity profile is 10.6 years, continuing to be one of the longest in the REIT industry. We successfully executed on many fronts throughout 2019, meeting or exceeding our targets. I want to thank our associates for their commitment, dedication and effort which produced these results. We are enthusiastic about the future but know full well there is more to be done in this ever-changing retail landscape. Moving on to 2020 guidance and the underlying assumptions. Our initial NAREIT FFO guidance range for 2020 is $1.46 to $1.50 per diluted share. This per share guidance range assumes a growth rate range for same-site NOI of 1.5% to 2%, including redevelopments, and 100 basis points for credit loss; includes incremental NOI growth of $12 million to $14 million from development projects and lowered NOI by $21 million associated with the full-year impact of 2019 net dispositions. Other assumptions include: reduced financing costs of $11 million to $17 million, primarily from the redemption of $575 million of preferred stock during 2019; flat to lower G&A in 2020 as compared to 2019; and the impact of the increased share count from the equity issuance in 2019. In addition, as Ross mentioned, our disposition target ranges from $200 million to $300 million, and our acquisition target is $100 million to $200 million. Lastly, our NAREIT FFO per share guidance range assumes no transactional income or expense and no additional common equity issued. And with that, we'd be happy to take your questions.

We're happy to take the first question.

Just wanted to follow up on your initial sort of same-store NOI guidance, 1.5% to 2%. I think everyone's trying to figure out, in the context of the deceleration from last year, how is that sort of an initial conservative range? Or is that realistic in the context of what you're expecting for fallout? There's what you know right now, in terms of fallout, versus what you may be anticipating as far as unknown buffer or a bad debt reserve. And I think we're just trying to get our arms around, is that an initial conservative range or is it disappointing based on what you are currently expecting? And I know that there are a lot of moving parts. There are some properties that are expected to join the pool this year that are potentially accretive to that growth rate. So just wanted to get some color around that.

Christy, yes, we're very much focused on that, and it's very early in the year as you know. We're focused on outperforming. We've got 11 months to do so. And if appropriate, we'll hopefully outperform and raise it throughout the year. But we do have 100 basis points reserved for credit loss. We think it's an appropriate range to start the year. It's a very fluid environment as you know. We've made some assumptions and believe that it's a good place to start and continue to believe that the transformed portfolio will continue to shine.

And then just on the comment around the properties adding to the same-store pool like Boulevard, how much is that expected to be accretive?

So the Boulevard would add in a range of around $3 million to $5 million as part of it, so on $900 million, it's helpful but it's modest.

Redevelopments, Christy, should be about somewhere between 20 to 40 basis points within the same-site guidance range.

Okay. And that 1.5% to 2%, that's excluding redevelopment or that's including that impact?

It's included.

I wonder how much of the 100 bps of reserve you had last year you needed to use in 2019.

Craig, it's Glenn. So we used a total of 44 basis points for all of 2019. So we came in ahead. And again, as part of that, we were able to continue to increase same-site NOI guidance as we went through 2019.

Okay. How much will you be involved in rent restructuring, and how does that impact the sequential decline in NOI from 2019 to 2020?

Craig, this is Dave Jamieson. I want to clarify that this is not really about rent restructuring. Our focus is on proactively identifying opportunities to enhance the quality of our tenants and to increase market rents through new agreements, renewals, and discussions with tenants with options. This is something we do consistently. I wouldn't categorize it as rent restructuring. Looking ahead, small shop activity remains strong. In the latter half of 2019, certain bankruptcy events caused a decrease, with around 130 basis points attributed to the bankruptcies that Conor mentioned. We see this as a chance to drive future growth through the end of 2020 and into 2021. We are optimistic about the market and the quality of our portfolio, especially with new anchors entering. As physical occupancy begins to tighten throughout the year, we expect this to further promote small shop growth.

Yes. Craig, we are currently at an all-time high occupancy of 96.4%, but we need some turnover to take advantage of mark-to-market opportunities. We are actively preleasing and seeking ways to enhance the creditworthiness of our tenants. We believe there are significant opportunities this year to drive mark-to-market growth for us.

I mean just given the record high occupancy, is that limiting your ability to push rents?

No. Again, on the spread side, it's always dependent on...

No. I just mean the fact that you're not able to add new occupancy to same-property.

No. I think, again, when you look at the anchor opportunities, there are renewals that are coming due that will continue to drive that mark-to-market. As you know, we have substantially below-market anchor portfolio that we've continued to realize the benefit of. In addition, on the small shop side, our small shops currently are over $29 a foot in rent. And when you look at 2020, the rollover schedule is at the lowest rate current in-place rent than the next five years. So when you look at the opportunity to push rents, there is still very much room to do so.

Okay. I guess, I mean, you sound pretty positive when we get to the details but the macro guidance is so much less. I guess I'm not really able to reconcile that.

Craig, I think if you look back the past two years, you'll see we've been consistent. It's a fluid environment, as you know. We want to be realistic, understanding that it's very early in the year. We're focused on outperforming like we have been doing, and we have 11 months to do so.

Your renewal spread of 4%, we've seen it hover around the 4% mark for three consecutive quarters. Is this a somewhat of a newer run rate that we should expect going forward?

Yes, it all depends on the population in any given quarter. Over the last two quarters, there were several options that remained flat on some of our large ground lease anchor boxes, which kept a lower blended spread. Additionally, with our anchor occupancy as it is, the small shops are slightly closer to market. This quarter, nearly 90% of our new deals were small shop deals, each under 5,000 square feet. This can sometimes lead to a closer mark-to-market equation, affecting your spread. However, as I mentioned earlier, looking ahead, there are opportunities to continue improving new lease spreads moving forward.

Okay. And just going back to a prior question on rent restructuring or just rent cuts. Just if you can give us a sense of how often that is actually happening at Kimco. And following up to that, is there a larger concern that even tenants that don't need a rent cut start to look more increasingly at the landscape, whether they're a tenant with you or at a different owner? And sorry to ask for something similar because if you're a strong tenant, maybe the mindset starts to shift from what paying rent based on what I could pay to what I should pay.

There's so many variables that go into any discussion. Everything is a negotiation. It's a case-by-case analysis, both on the tenant side and the landlord side. The value with Kimco is that high quality of our portfolio. Someone could look for a lesser quality property and maybe pay slightly less rent. But if you want to have the full benefit of our tenancy, our location, our real estate and the markets in which we operate, then that starts to weigh into the final decision that's made. So it's always a case-by-case, and that's something that we do on an ongoing basis.

We really haven't done any restructuring. If you look through the portfolio and look at our occupancy, we'd like to get some spaces back so we get the mark-to-market opportunity. So that's what's given us the ability to have confidence in the transformed portfolio because typically, as a tenant misses an option or wants to leave, we have the opportunity to backfill at a much higher rent. So that's what's driving our 20%-plus new store leasing spreads. When we get those spaces back, it's a nice position to be in because it all comes down to the competitive set when your shopping center is placed in the corridor, and we feel like we've got below-market rents in great locations and the right balance of supply and demand.

Christy's questioning. Last year, you mentioned you used around 45 basis points for your NOI guidance, yet you surpassed your top NOI estimate by 50. This year, you're indicating 100 basis points, which appears quite conservative. As you plan for 2020, I'm curious about how much of your same-store projections are based on legacy factors from what closed in 2019, like Pier 1 closures expected this year, and your budgeting for an unknown percentage. Is the 100 basis points reflective of that unknown percentage, with Pier 1 and last year's legacies being the variables contributing to the lower same-store projections compared to your results last year?

We remove all known closures from our budget, which includes sites where we anticipate tenants will vacate. Additionally, we allocate 100 basis points for credit reserve to provide a buffer in this fluid environment. Over the past few years, we've successfully raised funds throughout the year. It's still early in the year, and our goal is to outperform expectations. We have 11 months ahead of us, and if needed, we will continue to raise funds as the year progresses.

It's Glenn. There's roughly 30 basis points that we're aware of. So we're starting with that as a kind of a beginning point. And then the balance is really for what's unknown. So again, we are trying to take the approach to deal with, again, an environment that is sometimes fluid and has its challenges. And we want to just set the stage for us to be able to go through the year and hopefully outperform. Just the other thing to just bear in mind, we actually have a very tough comp in the first quarter. The first quarter of last year was 3.7%. So just kind of bear that in mind as we go.

Okay. Regarding Albertsons, there have been mentions in the news about a potential IPO. Could you provide any updates on the timing or whether it is likely to happen?

We can't comment on the rumor regarding the S-1. However, over the past couple of years, management, the Board, and investors have concentrated on equipping the company for success. This has involved reducing debt through sale-leasebacks and cutting cash by $3 billion, enhancing operations, and bringing in a new CEO to energize the management team. As we've mentioned in previous calls, we are preparing the company to execute at the right time and value. Regarding Kimco, we have about 35 locations with Albertsons, and we want this partnership to succeed in the long run. Therefore, we won't rush into decisions that don't align with the long-term interests of the business.

Can I ask you to go over the sources and uses? I'm just trying to understand, you're funding the $225 million of redevelopments. You have $100 million coming from dispositions. You'll have free cash flow, but I think you'll still be a bit short of the $225 million for developments. Could you address the capital plans and what you're assuming for guidance regarding debt or even equity?

In terms of the capital plan to fund the balance, we have some contracts in place related to our preferred equity investments and certain land parcels that will contribute to this. This amount is not included in Ross' disposition guidance and could be between $50 million and $75 million. Additionally, we will monitor the capital markets closely. While our current numbers do not factor in utilizing the equity markets, we plan to be opportunistic, similar to our approach in 2019. Moreover, we have substantial liquidity available through cash and our line of credit, and if necessary, the bond market is currently favorable. Overall, we have various options across multiple avenues to establish our funding mechanism.

Okay. Great. And then, I guess, my second question is on Dania Pointe. I know you've got the Forever 21 box there. You've got the Lucky's grocer. I guess an update on those two tenants. And then, I guess, is there some cotenancy risks that can impact the income coming through that development in the event that those stores close there?

Yes, that's a great question. Regarding the Forever 21 box, we signed that lease nearly three years ago. We're really pleased with how the project has evolved, especially with the recent additions of Urban Outfitters and Anthropologie as anchors for the other two locations on Main Street, alongside Tommy Bahamas. This development creates a new chance for us to fill that space, which initially was somewhat of a loss leader but is now moving closer to market value. We've already seen strong interest, and it’s one of the top locations in the center. As for Lucky's, it operates under a Kroger-backed ground lease. This also presents an opportunity since we had a grocery component at a low ground rent, and we're now bringing that closer to market as well. Kroger is currently on the lease.

We have recaptured the Forever 21 space, and we're actively marketing it right now. The ground lease that's backed by a Kroger, we have yet to recapture.

Conor, I was just hoping to dig into the expected growth a bit more. So guidance implies 1% of earnings growth, which is similar to 2019. But in 2020, we're not expecting a drag from the lease accounting change. There's fewer prior year dispositions, and seemingly, there's a greater contribution from development. So considering these items, can you just help us bridge the gap on why growth maybe appears a bit low versus what was achieved in 2019?

Yes. I think it's early in the year, and we believe we have a transformed portfolio. Developments and redevelopments are starting to come online, but the environment is very fluid. We acknowledge that retail changes daily. We need to position ourselves to recognize that if we can outperform, we may have the opportunity to adjust our projections accordingly throughout the year. The accomplishments of 2019 highlight our progress, but we have plenty of work ahead. Many projects still need to come online, leasing activities need to be completed, and there are retailers we are monitoring that might struggle to meet consumer needs. This is what is influencing the range we provided.

Okay. And then thinking about that drag from dispositions a bit more. Ross, can you help me with this one? So the messaging on dispositions going forward has been consistent at this $200 million to $300 million range, but we came in $75 million above the expected range in 2019. You'd still expect $200 million to $300 million in 2020. Just wondering if there is some deterioration in operating performance at certain assets, which led you to be slightly more aggressive on dispositions. And then potentially, what could lead to an increase in the disposition range for 2020?

Yes. I certainly wouldn't characterize it as a deterioration in the operations. There were a few assets that closed in the last 10 days of the year that we initially had anticipated would be 2020 dispositions, so that certainly factored into it. As it relates to the overage on the guidance in '19, that guidance was always a net transaction guidance. So when you factor in the sale-leaseback that was achieved in the early part of '19, it was really about $40 million. So it was a little bit less than the $75 million. But again, it was really just having a very robust demand for the assets. We typically, in years past, had about 80% to 85% success rate on the assets that we had in the market to closing. The second half of '19, every single asset that we put into the market closed, including ones that we thought would have been a few months delayed. So that elevated the range a bit for '19, but we're very comfortable that we'll be sticking within the range for 2020. And we have no desire or anticipation that we would move that range or ramp up our desire to sell more.

So Glenn, maybe you can help me with the builds versus occupied. How should we be thinking about your opportunity for narrowing that? Sounds like 270 basis point gap this year.

This is Dave. It's 240 basis points currently so it compressed from 270 to 240. When we look at the 2020 and the flow of that run, we expect anywhere from $10 million to $15 million to come from that 240 basis points, and it will be heavily weighted towards the back half of '20. So when we look on the outlook, whether or not it looks expand or contract, right now, I think we feel good about the range. We do know if some additional space does come back, that we start signing those new leases, it could expand a little bit. But I feel like right now, we are in the range, and we'll continue to open new stores and work on compressing it.

Thank you for that. I have a follow-up question regarding Boulevard. Glenn, you mentioned that there will be $3 million to $5 million of NOI coming online this year, which is significantly less than I anticipated based on my quick calculations. With a fixed cap of $214 million midyear, I would expect around $6 million to $6.5 million of NOI. Could you clarify what I might be overlooking and provide some additional insight on that figure?

Yes. I'll let Dave explain the timing.

Sure. Currently, we are in the process of getting the retailers ready for opening, and we plan to start opening them in the latter part of 2020. There are various factors involved in borough development in the New York tristate area, such as inspections and utility companies, which we are continually managing. As we work to finalize the construction phase of this project, these factors will influence the timing of when tenants can occupy the spaces. That said, we remain very confident about the project's eventual stabilization and the quality of the shops, but the timing of the openings as we look towards the latter part of 2020 into 2021 is still a significant consideration.

Right. Stabilization for the assets should be towards the end of '21.

Can you talk about your expectations for the timing of dispositions in 2020?

I believe the first quarter will definitely be lighter than expected. As I mentioned, several assets we anticipated closing in Q1 actually closed at the end of last year. Therefore, we should see an increase in activity in the second, third, and fourth quarters. At that time, the flow should become more consistent. However, Q1 will have fewer dispositions.

Okay. And then do you have your anchor mark-to-market for the leases expiring in 2020?

Yes. Currently, we have 89 leases expiring, some of which include options, with a rate of $11 a foot, $11.54. Our current anchors are around $14 a foot.

A couple of clarification questions, maybe going back to the beginning. When you thought about the headwind from redevelopment to same-store NOI, was that 20 to 30 basis points? Did I hear that right?

It's 20 to 40 basis points, not as a headwind though. It's embedded in the number that we used.

No, no. I'm sorry for using the wrong term. I just wanted to make sure I understood what impact redevelopment was having on same-store NOI. And then on the loss reserve, you mentioned 100 basis points, which I completely understand. And our math as per the supplement agrees with you. But when you talked about the known 30 basis points, is that included in the 100 basis points? Or should we be thinking about the loss reserve as closer to like 130 basis points versus 100?

We remove the known tenants that will not be part of this. So those are excluded. There are other factors that contribute to the remaining 30 basis points. Therefore, I would suggest that if no additional factors came into play, we would anticipate a credit loss of 30 basis points. However, we recognize that will not be the case. Consequently, we have incorporated an additional 70 basis points into our budget process for all the other uncertainties. So, to clarify, it's not 130 basis points; it totals to 100 in our budget considerations.

Got it. That's very helpful. Could you discuss the expected trend of same-store NOI throughout the year? The first quarter of 2019 was quite strong at 3.7% same-store NOI. Do you anticipate that the first quarter of 2020 will perform similarly to the first quarter of 2019? Is there anything specific we should consider when making year-over-year comparisons?

Right. Although we don't give quarterly guidance, I will tell you that it's our expectation that the first quarter would probably be the low point in terms of what we would report for the year, and you'll see it ramp up as we go throughout 2020.

I have a quick question for clarification regarding Pier 1. I believe you have 30 locations that are experiencing about 50 basis points of rental impact. What are your expectations if that were to improve? I noticed that the average rent is approximately $22 a square foot, which is significantly higher than your average anchor rent. Are you currently looking to market that lease or are you already active in marketing that space?

Yes. We've been proactively looking to prelease the Pier 1 boxes for a period of time. And just to clarify, Pier 1 ranges in size, and actually, a sizable majority of them are actually below what we deem as an acreage anything over 10,000 square feet. So using the anchor average rent is not necessarily the most appropriate way to determine a mark-to-market benefit. Some will be up, some will be down, but I feel like we have a good opportunity there. In addition to that, we obviously will be upgrading the quality of the tenancy and bringing in thriving retailers to help occupy those spaces. So as we continue to look out into '20, we're monitoring the situation very, very closely, and we'll continue to actively prelease those boxes.

On the 2020 acquisitions, the 5% to 6% cap rate, what upside do you expect in rents? And what does the same-store growth profile look like relative to the in-place portfolio?

Yes, I believe there are some differences between the two. When we evaluate acquisition opportunities, we expect that, considering the market conditions, locations, and the quality of the assets we will be purchasing, the cap rates will be in the range of 5% to 6% in the first year. However, any opportunity we consider will likely have significant growth potential, whether through below-market leases or redevelopment chances. Therefore, we expect that any acquisitions over time will have a growth rate that surpasses that of the existing portfolio and will enhance both the quality and growth of the portfolio in the long term. However, I cannot provide details about a specific acquisition at this moment.

And then it looks like straight-line rent was higher on a quarter-over-quarter and year-over-year basis. Why did this go up a bit? And what's the more realistic run rate for 2020?

Straight-line rent is related to the leases that are being signed and when the spaces are ready for opening or delivery to the tenants. This is a key factor driving it. There have been many new leases signed in locations like Mill Station and Dania, which include a significant amount of free rent that is factored into the straight-lining. The current run rate is lower than what was observed in the fourth quarter.

Okay. And then I think you mentioned in the prepared remarks, flat to lower G&A in 2020. What's driving that?

More efficiency for one thing. If you look what we've done, we've reduced the size of the portfolio.

And also the leasing costs from a year-over-year perspective.

We spend significant time monitoring our general and administrative expenses and do everything possible to keep them in check. As we have downsized our portfolio over the years, we have also reduced some staff.

We've updated our systems as well. We switched over to MRI and made a lot of investment there so we think there's going to be significant efficiencies and synergies coming from that investment.

Ross, a real quick one. Do you have anything under contract right around as far as acquisitions go?

No, nothing under contract at the moment.

Okay. Please bear with me as I seek clarification on same-store figures so I can fully understand. Last year, you achieved a 3% increase, both including and excluding redevelopment. The guidance of 1.5% to 2% includes redevelopment. Should I interpret this to mean that without redevelopment, the guidance would be approximately 1.3% to 1.6%? Is that the correct way to think about it?

Yes, that would be correct. Chris, again, it's a starting point for us when we look at it, and you're baking in 100 basis points of credit loss. So a little over...

So let me go to the next point, which is the known fallouts that you had from 2019, so Dress Barns and all that, that's 130 basis points that you know going into this year, correct?

That's already built into our guidance.

Right, right. So that's an initial drag, you know that going in. So that's already 130. So now we're looking at going into this year. You have 100 basis points of essentially reserve, and 30 of it, you already kind of know about. So there's 70 left of sort of whatever for the rest of the year. Is that correct?

No. Chris, I think what you're trying to get at is with the initial headwind from the lost rents of some of those retailers that went bankrupt at the end of last year. That's somewhere about 40 basis points. That is factored into the initial guidance, and that's not part of our first starting point guidance of a credit loss of 100 basis points.

Right. Said differently, if those tenants were all still there, the guidance would be 40 basis points higher. We know they're out so we started with that out of the number already.

I apologize for interrupting, but I would like to continue the discussion. Regarding the unknown, you specified 30 basis points and 70 basis points out of the 100 basis point reserve. Is the entire 30 basis points attributed to Forever 21? How does Pier 1 fit into this, as I assume that falls under the 70? Additionally, what are your expectations for how the models will play out? Is that related to the 70? Could you provide more specifics on what you anticipate for each of the individual retailers?

We have reviewed the Pier 1 closing list and incorporated that into our models. We recently received the list, which indicates that some stores are expected to close. This falls within the 30 stores I mentioned earlier. It is important to note that this is not related to Forever 21.

Where does Forever 21 fall in? It's not even in the top 100 because it's already within the range.

Yes. In Forever 21, we had a very small exposure. So when you're talking about Dania, it's Dania, the Phase 2 is not in our same-site pool so that would be part of it.

And there's only one location.

Yes. So that's not part of the issue. I think as you mentioned, Christy, that hey, when we go through Pier 1 put out initial closing list. We know that there's some number of those stores that we have right away. That factors into the 100 basis points. And then for some of the other names that you've mentioned and some of the other ones out there, we factor in that impact. We look at the sensitivity of maybe potential timing of when during the course of the year that could happen. It's early. We'll have better visibility after maybe the first quarter, and that's what typically when we reevaluate everything going forward.

Okay. And then just to follow up on Linda's question around the noncash rents. Should we be aware of any sort of write-off of straight-line rent receivable related to some of the questionable uncollectibility or any sort of acceleration of FAS 141 this year based on any early space recapture that you're expecting?

Last year, we had some below-market rents, which definitely helped our numbers. This year, we have a smaller amount of below-market rent benefit projected compared to 2019. Regarding the write-off of straight-line rent, it will depend on the tenants. We evaluate each tenant based on their credit quality, and if a tenant defaults, we would write that off immediately. There is a small amount of that included in our plan for this year.

Okay. Could you share your thoughts on free cash flow after dividends? Specifically, how do you see recurring capital expenditures this year compared to the previous few years in terms of leasing, capital expenses, landlord costs, and ongoing maintenance capital expenses as they impact your free cash flow growth?

I would say that overall, the total for capital expenditures, leasing commissions, and tenant improvements is in a similar range for 2020 compared to what we spent in 2019.

Thank you for participating in our call today. I'm available during the course of the day, if you have any additional follow-up questions. Otherwise, I hope you have a really nice day. Thanks so much.