Kimco Realty Corporation (KIM) Q2 2021 Earnings Report, Transcript and Summary

Good day. And welcome to the Kimco Realty Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dave Bujnicki. Please go ahead.

Good morning. And thank you for joining Kimco’s second quarter 2021 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; David Jamieson, Kimco’s Chief Operating Officer; as well as other members of Kimco’s executive team that are also available to answer questions during the call. As a reminder, statements made during the course of this call maybe 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 in the Investor Relations area of our 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. With that, I’ll turn the call over to Conor.

Good morning, and thanks for joining us. Today, I will focus my remarks on our operating results. The supply and demand dynamics surrounding those results, the strategic direction we are taking the organization and the powerful position Kimco will have upon the closing of our merger with Weingarten, Ross will then provide some perspective on the transaction market and Glenn will provide additional financial insight on the quarter along with our updated guidance. As I’ve often mentioned, our core focus has been and will continue to be on leasing, leasing leasing, that fuels our growth, validates the quality of our portfolio, strengthens our balance sheet, reduces risk and is a catalyst to overcome pandemic induced disruption. Our second quarter leasing activity and overall results continue to build upon the success that began earlier this year, as we leased 1.8 million square feet and signed 333 leases. This leasing included 139 new leases for GLA exceeding the prior sequential quarter. Overall occupancy finished at 93.9%, up 40 basis points, while our new leasing spreads of 9.2% and renewal spreads of 4.7% resulted in a record 42 quarters or 10 years in a row of positive spreads. The combination of record leasing demand and a five-year low of new vacancies continue to drive the earlier than anticipated occupancy recovery for Kimco. Traffic at our properties is back to 2019 levels and the healthy leasing market reflects the reopening of the economy and the rush by tenants to capture market share is apparent as they pursue our high quality locations. Moreover, in our attractive and strategically selected markets, we do not anticipate any material new supply in the near-term to impact our pricing power. Robust demand for anchor space continues across our portfolio. Centers of the grocery component have outperformed during the pandemic and continued to lead the rebound. We’re also seeing data on restaurants that show people are eager to go out and eat again with the Sunbelt states outperformance. Similar trends with fitness where traffic is coming back quickly. On the store openings off price continues to be a leading source of demand, but we’re also seeing solid demand for furniture, home goods, pet supply, hobby, health and wellness, including discount fitness, just to name a few. Our anchor occupancy finished the quarter at 96.9%, up 70 basis points, which is the single largest quarterly gain since we started reporting anchor occupancy 10 years ago. Small shop demand also continues to recover, albeit at a slower pace. The small shop demand is now building is coming from franchise quick service restaurants, beauty, hair and nail salons, medical and other services. While small shop occupancy did finish down 30 basis points to end at 5.5%, it was impacted from the inclusion of Dania Phases 2 and 3 in the occupancy. If not for this, small shop occupancy would have actually increased sequentially by 30 basis points during the second quarter and we remain confident that the smaller tenants will gradually accelerate their demand for space, as they gain comfort as the recovery from last year severe disruption is sustainable. Further, the importance of being located as a last mile solution for a multitude of potential tenants continues to grow. Our mission critical last mile brick-and-mortar locations will prove to be durable solutions for consumers, retailers and many other businesses that want scale and reach to serve the end consumer. One silver lining of the last year and a half is that it showcased the strength of our repositioned grocery anchored portfolio, the resiliency of our cash flows, and the strength and diversity of our strong mix of high credit tenants. As our occupancy recovers, we anticipate EBITDA and FFO growth will follow and bolster our balance sheet metrics. We are also in a unique position to drive earnings results with multiple levers for growth led by our continued emphasis on leasing and attractive redevelopment opportunities. On the strategic front, the completion of our accretive merger with Weingarten is fast approaching and ahead of schedule. The shareholder votes are scheduled for August 3rd and subject to customary closing conditions. The closing should occur shortly thereafter. With Weingarten’s portfolio combined with Kimco’s, following the merger, we will have even more confident in our ability to drive significant and sustained value from this concentrated platform of open-air, grocery-anchored and mixed use assets in the leading MSAs across the country. Touching further on the power of the merger, the combined company will continue to focus on operating a dynamic and well diversified portfolio in these markets, but with greater scale, resources and embedded opportunities. We expect that the complementary business operations will allow us to extract annualized cost efficiencies, while deleveraging our balance sheet. I think it is important to reiterate the scale and reach we will have with our targeted first-ring suburbs of core markets across the Sunbelt. Together we’ll have approximately 550 open-air, grocery-anchored shopping centers and mixed-use assets comprising more than 100 million square feet of gross leasable area. At closing approximately 82% of the company’s total annual base rent will be derived from strategic Sunbelt growth markets and high-barrier-to-entry top coastal markets. The combined platform will also have a highly diversified strong credit tenant base. With the top 10 tenants, all essential, industry leading grocers and best-in-class retailers, with no single tenant representing more than 4% of ABR and given that we are not completely out of the pandemic woods yet, with the reality and threat of new strains, we believe the combined portfolio, strong balance sheets and battle tested team puts us in an even better position to withstand any disruptions to the ongoing recovery. Looking beyond the closing, the Weingarten portfolio brings a largely funded and derisked development pipeline, and presents vast potential in the form of embedded untapped redevelopment from which we believe we can extract incremental value. Ultimately, we believe this a creative combination will result in enhanced financial strength, with the flexibility and resources to efficiently capitalize on the value creation opportunities ahead. Well, we will be quantifying the impact until after the transaction is closed. We are highly energized by the opportunities in front of us to maximize value for shareholders. In closing, our team is motivated and executing. As we look forward, our ability to create value will be enhanced in the coming years by our last mile fulfillment opportunities, with high growth, high quality, open-air, grocery-anchored shopping centers and mixed use properties that will enable us to realize substantial operating benefits. With that, I will turn the call over to Ross.

Good morning, and thank you, Conor. As the recovery from the pandemic continues to take shape and the essential nature of our open-air shopping center locations become more apparent, the capital flowing to the space also continues to significantly increase. A well-capitalized private equity investor recently told me, there’s only so much sub-4% cap rate industrial and multifamily products we can buy. The risk adjusted return for high quality open-air retail products has become increasingly evident. We have seen this sentiment play out in the transactions market this quarter and the momentum continues to build. We have seen it on portfolios and one-off centers alike. Leasing velocity and renewal rates have given investors confidence in both the stability and future upside of existing cash flows and rent rolls. With capital abundant on both the equity and debt side, and with interest rates declining even lower recently, a very accommodative environment for deal flow exists. This includes a recently closed grocery portfolio in the Philadelphia MSA, a diversified portfolio of retail assets in Phoenix, one-off grocery deals in South Florida, New Jersey, and several in Southern California and Atlanta to give a few examples. As we see brokers starting to report results, it is clear 2021 is on track to be one of the highest production years for the industry. There is no question that appetite for open-air retail is voracious. We continue to be opportunistic, yet selective and disciplines in the investments we make. In the second quarter as an addition to our structured investments program, we invested approximately $55 million in a preferred equity position into The Rim, a dominant retail, entertainment and mixed-use district having over 1 million square feet of GLA located in a fast growing San Antonio market. The property has consistently been the number one most heavily trafficked center in all of Texas, with exceptional tenant sales to support the property. We are extremely excited for the upside of this investment, which was made at an attractive current yield and reasonable basis, along with a right-of-first-refusal to buy the center in the future. Another recent success is the sale of a two -- of two Rite Aid California-based distribution centers closed in the second quarter that were acquired by our taxable REIT subsidiary earlier this year in a sale leaseback transaction. When we completed the sale of these two properties at a price of $108 million, it represented a significant increase from the $84 million paid just five months earlier and generated a 72% IRR for Kimco on this investment. As we carefully considered capital allocation and disciplined investment opportunities, we believe that selective acquisitions, structured investments and partnership buyouts will continue to present themselves at the appropriate times. Now to Glenn for the financial results for the quarter.

Thanks, Ross, and good morning. Our solid second quarter growth is fueled by continued improvement in rent collections, low credit loss and very strong same site NOI. Our strong leasing efforts combined with an improving economy produced a sequential uptick in occupancy and another quarter of positive leasing spreads. In addition, as EBITDA has increased, our debt metrics have also improved. Now for some details on second quarter results, NAREIT FFO was $148.8 million or $0.34 per diluted share for the second quarter 2021, which includes merger-related charges of $3.2 million or $0.01 per diluted share in connection with the anticipated merger with Weingarten. This compares to $103.5 million or $0.24 per diluted share for the second quarter of the prior year. The significant growth was mainly driven by increased pro rata NOI of $44.7 million comprised of lower credit losses from potentially uncollectible accounts and straight line rents of $15.9 million and higher lease termination income of $2.7 million. These increases were offset by lower minimum rent and reduce TAM [ph] and real estate tax recoveries due to lower occupancy compared to the same quarter last year. The improvement in credit losses attributable to our increased cash collections as we are approaching pre-pandemic rent collection levels. During the second quarter, we collected over 96% of pro rata based rents billed. We also collected over 77% of rents due from cash basis tenants during the second quarter, up from 70% collected in the first quarter. Further, collections of prior period amounts from cash basis tenants totaling $7 million during the second quarter of 2021 versus $1.8 million collected during the same period in 2020. Our cash basis tenants comprise 8.8% of total annualized base rents. In addition, we collected almost 90% of the deferred rent billed during the second quarter. At the end of June, we have approximately $25.4 million of deferred rents, which remains to be billed over the next 12 months and 64% of this demand is reserved. As Conor mentioned, the operating portfolio delivered significant improvement in the second quarter, with a sequential increase in occupancy and positive leasing spreads. Our same site NOI growth including redevelopments was 16.7%, including a 30-basis-point uplift from these voids [ph]. This is the first positive quarter of same site NOI growth since first quarter 2020 and should be the start of a recurring trend. Another positive indicator is the increase in the spread of lease versus economic occupancy, which now stands at approximately 300 basis points, up from 230 basis points last quarter and represents $33.4 million of pro rata ABR. The spread bodes well for future cash flow growth. Turning to the balance sheet, at the end of the second quarter consolidated net debt-to-EBITDA was 6.3 times. On a look through basis, including pro rata share of JV debt and pro rata -- and preferred stock outstanding, the metric was 7.1 times. These metrics are better than the pre-pandemic levels at the end of 2019. From a liquidity standpoint, we ended the second quarter with over $230 million of cash and full availability on our $2 billion revolving credit facility. We will be using cash on hand and a portion of the revolver to sum the cash component of the Weingarten merger consideration and transaction costs. In addition, our Albertsons marketable security investment was valued at close to $800 million at the end of June and there are no plans to monetize any portion of this investment during 2021. During the second quarter, we repaid $120 million of mortgage debt, unencumbering an additional 23 assets. We have no consolidated debt maturing from the balance of the year and our next bond maturity is not until November of 2022. Our weighted average consolidated debt maturity profile stands at 10.7 years, one of the longest in the REIT industry. As for JV debt, we have only $53 million maturing for the remainder of the year, with refinancing alternatives already identified. With respect to outlook for the balance of the year, based on our first half 2021 operating results, an expectations that include ongoing improvement in credit loss and same site NOI growth, we are again raising our NAREIT FFO per share guidance range to $1.29 to $1.33 from the previous range of $1.22 to $1.26. This new range is presented on a standalone basis and does not incorporate any impact of the pending merger with Weingarten other than the $3.2 million or $0.01 per diluted share of merger related charges incurred during the second quarter 2021. Assuming the merger is complete during the third quarter as anticipated, we will provide updated guidance on a combined basis on our next earnings. Lastly, with respect to our common dividend, shortly after the merger is completed, the Board of Directors expects to declare a regular quarterly cash dividend, which will be payable during the third quarter. And now we’d be ready to take your questions.

We’ve been advised to keep this call focus on Kimco’s second quarter results and the outlook as a standalone company. More information will be forthcoming once this transaction closes, which we anticipate will be shortly after the completion of the respective meetings of stockholders, which is on August 3rd. In terms of the Q&A, we want to make this an efficient process. You may ask a question with an additional follow-up. If you have additional questions, you’re more than welcome to rejoin the queue. Tom, you can take the first caller.

Thank you. [Operator Instructions] The first question comes from Craig Schmidt with Bank of America. Please go ahead.

Thank you. Obviously enjoying the improved results, but I just -- I want to know if the recent spike in COVID-19 cases and some of the breakthrough cases are giving any of your tenants or retailers hesitancy regarding longer term leasing decisions?

Yeah. Craig, it’s a great question, obviously, top of mind for all of us right now. The Delta variant as we know is running across the country. But we haven’t seen any meaningful change in terms of our outlook or views. Right now, obviously, all markets are open and a lot of lessons have been learned over the last 16 months of how people have adapted to sort of a new normal and how you shop and access those retailers and the retailers themselves. As you could -- as evidenced by our occupancy gains this quarter continue to look for new opportunities to expand as they prepare for the new normal within 2021, 2022 and 2023.

Great. And then a follow-up question, it’s probably for Ross. Regarding the increased transaction market, neighborhood community lifestyle or power centers, which are you seeing the biggest pickup in activity in transaction and which are seeing the lowest rise in transactions?

Yeah. I mean, there’s no doubt that grocery-anchored infill shopping centers are very much in demand right now. As I mentioned in the prepared remarks, I mean, you think about the risk adjusted return, the spread on high quality grocery-anchored centers in the high 4s to the low 5s, and you’re still getting a good 100 basis points -- 125 basis points spread compared to some of the other asset classes. So we’re starting to see a lot of both private and some of our public peers getting much more aggressive on that product type and we think that will just continue. We aren’t seeing more activity on power and lifestyle, there’s not as much that we’ve seen transact as of yet. But with the improvement in the economy, with the improvement in the retailer sales, we are seeing much more conviction on some of those categories that you see in lifestyle centers, such as restaurants, entertainment, fitness, really coming back and solidifying themselves. So I think that there’s just a lot of demand for all product types right now within open-air retail.

Okay. Thank you.

The next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

Hi. Good morning. Just hoping you could spend a little time talking about the assumptions behind collections of past due rents and your reversals of bad debt for the balance of the year. And if you could just go over what was in the second quarter as the numbers you went through in your prepared remarks were pretty quick paced?

So in terms of what we collected $7 million from our tenants, our cash basis tenants from the prior periods during the second quarter. As -- in terms of the outlook for the balance of the year, again, it’s still going to be wait and see how it all goes. But collections, as I’ve mentioned, have improved. We collected close to 96% of our base rents. We collected 77% of the cash basis tenants that were billed during the quarter. So it’s -- we’re going to have to wait and see, though, for the bounce of the year. We do have in the -- in guidance, there is credit loss that’s still -- that’s built into the numbers, the low end has still has about $20 million of credit was built in. The high end of our range has about $5 million. So based on where things are today, we’re more comfortable when we look at our guidance towards the upper end of the range.

Is there a follow up one or we can go to the next caller,

I apologize. I was on mute, surprise. But just if you could give a little color on Dania and how leasing is tracking there for the small shop space or where the demand is coming from and how you’re feeling about your underwriting there? Thank you.

Yeah. And we actually feel very good about the direction that Dania is going with the new openings earlier this year with Urban Outfitters and Anthropologie. Later this summer, we have several other new openings there on the horizon. We have American Eagle towards the end of the year, Regal, we have the two Marriott flag hotels, they’ll be opening this fall, as well as including some of the additional restaurant spaces. So there’s tremendous change in growth that’s coming from Dania as we started to get these other retailers open and we have Sprouts that’s scheduled to open towards November, December of this year as well. Then followed by that, and obviously, it’s a strong leasing demand, as the economies have started to recover and people have really appreciated the location of this site along 995 and all the growth that’s happening in Fort Lauderdale market. We’re very encouraged by the direction of Dania long-term.

So the only point I’d add is Spirit Airlines is in procurement on their piece of the project, which is their headquarters that I think should be a nice component of the live workplace environment that we’re building there.

And I want to dive with that Conor and is that the second residential tower is also completed and ready to break ground shortly.

Thank you.

The next question comes from Rich Hill with Morgan Stanley. Please go ahead.

Hey. Good morning, guys. I wanted to come back to occupancy for a second, by all indications and I think your prepared remarks support this. The leasing market feels pretty good. But I think a lot of the recovery depends upon how long we’re going to -- how long it takes to get occupancy back to normal. I think your peak prior to COVID, and correct me if I’m wrong, was just a little bit higher than 96%. So while the trends look really good, I’m wondering if you can just comment on the path to getting back to pre-COVID levels. How long do you think that takes and what does that mean for a recovery in total NOI? Is that still in mid-2023 event or do you think after this quarter that’s pulled forward to maybe late 2022?

Yeah. It’s a great question. Well, the path is really dependent on demand. So I think you have to start there and understand where the retailers are today and then what we anticipate going forward. I think, for a few reasons, we’ll continue to see that this demand stay pace. We will maintain pace from what we’ve seen in the last two quarters. One, you still are -- the retailer, they’re still working through, they are all going to buy numbers that they’re trying to achieve in 2020 and now in 2021. So there’s a bit of a bottleneck there that they’re actively trying to expand and upgrade the quality of their portfolio to A quality sites with the new supply, that’s obviously come online, not the new supply, but the vacancy as a result of the pandemic. That’s given them the opportunity. Second to that, other retailers were able to raise additional capital or right size their balance sheets through the pandemic. So when you look at grocer such as fresh market that may have not been necessarily on an expansion mode, pre-pandemic, they’re now starting to look at new stores and new locations to add grocery in new market. So you now have some new demand drivers on top of the pent-up demand from the existing retailer. And then, third, you have others that are really testing new formats. We’ve learned so much in the last 16 months of how consumers respond to retailers, how they want to shop. And so you do have retailers like Container Store, they had been fairly set in their way about their store format. But now looking at smaller formats and penetrating other markets as well. So you’ll continue to see that as demand factor. And then new concepts, new concepts like choice markets, which is trying to reinvent the C-store and adapt to more millennial trends. DoorDash has come out with DashMart and so you’re starting to add new categories on top of what we’ve historically seen. So I think as long as you maintain those demand drivers, we’ll be able to make good progress in recovering our occupancy and get back to what was our peak.

Yeah. Rich, the one thing I would add is just, the Kimco differentiator I think is, our team, obviously, first and foremost, but then we’ve optimized the entire portfolio with the curbside pickup program. And I think retailers are really resonating with that program. They’ve come to us and said it’s best-in-class. They want to do more sites with us. And I think when you combine that with our team, it leads us to believe that the occupancy is going to continue to trend in the right direction. Now we might see a pause next quarter because of some of the eviction moratoriums that are burning off. But we think there’s enough demand, obviously, there to backfill that. And it’s led by the anchors and then we think that’s going to follow with the small shops. The anchored demand is diverse, which is great to see and then the small shops should fall along after that.

Got it. Conor, just to push a little bit more on this. What I’m trying to get at is, is the trough just higher than what we anticipated, but the endpoint is the same. And if I looking -- if I’m looking at sort of your prepared remarks and your press release, where you talk about, maybe stronger portfolio occupancy gains than what you were previously anticipating, that leads me to believe that the trough is higher, but the recoveries also a little bit steeper. So if I can push this here a little bit, I’m sorry for putting words in your mouth. But I think you’ve said mid-2023 for recovery in the past, does that -- do you feel better about that recovery endpoint post-2Q or as 2Q just the sugar high, that leads to a higher trough?

It’s -- really, obviously, Rich, it’s hard to predict the future, especially with the Delta variant out there. But what we’ve seen so far is the demand is not subsiding. I think that timeline still holds true. And I think we’ve got to obviously execute let the numbers speak for themselves and right now with this quarter, it’s not a sugar high quarter. We see the backup of pent-up demand occurring through the leasing pipeline that we’ve built up and believe that we can continue the momentum. But clearly, there’s a lot of various factors out there that we can’t anticipate the future with. But right now what we said, we’d like what we see.

Okay. Great, guys. Nice quarter. Thank you for the additional color. That’s it for me.

The next question comes from Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. Rents spread on new leases accelerated further during the period. How much pricing power do you have right now and can that continue to accelerate from here?

Yeah. So the leasing spreads are always, it’s totally dependent about the population that’s within that on any given quarter, but the supply demand balance right now where retailers are really looking to upgrade the quality of their portfolio, our efforts to right size our portfolio to make sure that we really own A quality assets, enables us to maintain that supply demand balance and so we’re able to push rents on the below market pieces that we have. And when you look at the lease expiration schedule that’s on the horizon, in the next couple of years, they’re still -- those leases and those rents are below what our corporate average is right now. So we still see that there’s opportunity to push those rents further as at least as well.

If the demand for last mile retail has just come rolling back and when you look at some of the tidbits that we’re hearing from tenants that are typically, I would say, penny pinching, that are saying that they’ll pay off for the locations that fit their needs. Clearly, their supply and demand dynamic is shifted in our favor and with no new supply on the horizon, we do feel like we’re going to have pricing power continue in our favor.

That’s really helpful. And as a follow up, when retailers are looking to expand, where -- what are they looking for specifically in their new locations? Are they focused on certain geographies? Are they focused more on first-ring suburbs or maybe more suburban areas? Like how are -- how does the expansion look and where are you seeing that demand?

Yeah. It’s retailer dependent based on their corporate strategy. So it’s -- what are the voids that they see in their program and how are they trying to fill it. For example, you could have a grocery store that’s either modify their formats. Sprouts did that a couple years ago between 30,000 square feet now down to around that 22,000 to 24,000 square foot range. So they’re looking at new box opportunities that are more prototypical to what historically they targeted. While others are looking to potentially expand the box to incorporate more last mile distribution, that Connor mentioned earlier, or some other form of fulfillment. The first-ring suburb, that’s really where we’re focused, and obviously, there’s been a huge value-add and being closest to the customer where they live and now with sort of what the world will look like with the hybrid back-to-work model, there’s definitely much more of a balance between urban and first-ring suburban markets. And so we’ll continue to see that demand pick up on the first-ring suburbs. So it’s a really hard answer to give that, that specific in one general and one specific way, because every retailer is looking at it a little bit differently based on historically what they’ve done and where they see these voids and how they want to achieve that.

Yeah. The retailers today have more data on their customer than they’ve ever had before and so really where they’re focused is, how do they best serve that customer. And now with the data that they have, how important that last mile store is to not only the floor wall, but the actual Halo effects of buy online, pick up in store, curbside pick up, the ease of returns. A lot of the feedback that we’re hearing from our retailers is, the spaces that we may have passed on before we want to look out again. And I think that’s sort of the tidbits that we’re taking away from this is, there’s a lot of pent-up demand, there’s a lot of voids that need to be filled and last mile retail has become more valuable due to the pandemic.

Appreciate it. Good luck on the back half.

Tom, next caller.

The next question comes from Katy McConnell with Citi. Please go ahead.

Great. Thanks. Good morning, everyone. So I am wondering if you can provide a little more background on the Rite Aid transactions and the market dynamics that led to the quick monetization of that investment.

Sure. Yeah. I mean, when we started the conversation with Rite Aid back in May of 2020, obviously, it was a bit of a different environment. We stated publicly around that time that we were looking to be opportunistic. We felt that the balance sheet and our liquidity position enabled us to do that. So we were fortunate enough to have those conversations directly with one of our resellers. We felt very good about the leases that we were able to negotiate with them in terms of the rent versus market, having annual increases that we felt were very attractive, and obviously, seeing the demand for single-tenant products, particularly in the industrial space, we knew that there was a lot of value that was created on that acquisition. So we wanted to maintain it as much flexibility as possible, which was why we bought it into the TRS and the market spoke, and clearly, there was some good upside rather quickly that we wanted to capitalize and we were able to do that with the monetization of itself. It was a bit of a unique transaction but we were excited about it, of course, and we’ll continue to look for those diamonds in the rough where they come.

Yeah. Katy you know, but others may not that this really falls into our plus business, which we believe is a real differentiator for Kimco. We focus on retailers that are real estate rich and have the ability to come in and hopefully unlock a lot of value for our shareholders through a differentiated strategy. So it’s one that is unique to Kimco. We’re very proud of it. Obviously, we own a lot of Albertsons shares because of this strategy and this is just another data point of why we think it’s a nice differentiator for Kimco to unlock value from retailers that are real estate rich.

Okay. Great. And then bigger picture, can you provide some more commentary around what you’re seeing from an institutional capital perspective and the appetite to put capital to work in strips today, and maybe touch on your appetite to monetize assets, if approached by your capital partners for more JV deals today?

Yeah. I missed the beginning of the question. I’m sorry. Would you mind just repeating that?

Yeah. Just looking for some more commentary around what you’re seeing from institutional capital on the demand to put capital to work in strips today.

Sure. Yeah. I mean, it’s voracious, as I mentioned in the opening remarks. I mean, there’s a significant amount of capital that was raised during this pandemic. Everybody was looking for distress. It really did not materialize. And now what you’re seeing is that a lot of that capital is really focused on core. So we’re in a pretty unique position that, there’s a lot of investors that want to invest in retail, but maybe lack the operational expertise. So we are fielding a lot of questions, a lot of comments, a lot of inquiries from institutional capital that want to invest in retail, want to take advantage, see that there is clearly a need and utility of our open-air space. But how do they actually go about investing in that. So we’re having a lot of those conversations. There’s plenty of capital that’s looking for it and now it’s just being very selective as to where we put our capital and who we invest alongside. That being said, there are other investors that have substantial legacy retail investments, many of which are not necessarily in open-air retail, that are looking to maybe reduce that exposure. And that also becomes an opportunity for us. If they’re looking for what component of their retail investments are liquid in this market. It’s clearly the open-air neighborhood grocery shopping centers that are attractive -- are attracting a lot of capital that they know that they can monetize and we’re there to discuss that with them as well.

Okay. Great. Thanks.

The next question comes from Greg McGinniss with Scotiabank. Please go ahead.

Hey. Good morning. So just noticed that renewal lease volumes were down from last quarter, but I assume that bucket is primarily driven by expiring leases and somewhat out of your control. Now that said, have you noticed any changes or trends with regard to tenant retention?

Yeah. So Q1 you tend to have a higher renewal rate because that’s when more leases rollover, so you’re spot on there. It’s really related to the population on a given quarter about when their leases roll. But as it relates to retention trends, they’ve been very strong and people that have certain -- retailers that have made it through the pandemic at this point, I think, feel good about the position they’re in. For us, as Conor mentioned earlier, with curbside, we’ve done an extraordinary amount and working with our tenants and trying to provide a true Kimco advantage to be a retail partner within a Kimco center. And I think what retailers have come to learn is that your landlord matters. If you’re well capitalized, you have vision, you’re willing to test experiment and be a true partner and a good steward of not only the retailer, but of the community itself, it makes a big, big difference. For a lot of these small shops, this is their livelihood and they’re investing a tremendous amount of sweat equity and their own money into the business. And so they want to make sure that whoever they’re aligned with is also in partnership with them. I think that’s been a big eye opening experience for a lot of those retailers, so that’s definitely helped us with retention levels.

So that maintains retention then or is it increased, like, versus pre-pandemic?

Well, I think, our renewals have always been quite strong. So I think it’s just standing it proven.

Hey, Greg. I think the most sellers today are looking at their spaces and recognizing that the leases might be below market and it might be very difficult to replace that location. So retention rates are high. We feel like we’re confident in the portfolio and knowing that with the supply and demand dynamic, we don’t see that changing.

Okay. Thanks. And then, Juan, partially covered this question earlier. But, Glenn, just curious how you thinking about switching tenants back to accrual based accounting, are you kind of waiting to see what happens with the potential rising COVID cases right now or could we start to see some of those reversals?

Hey, Greg. This is Kathleen. I am sure I will take that this one for you.

Okay.

So you’re right. You’re -- there’s always a thought of what’s to come with a pandemic. And as you probably know, cash basis isn’t the kind of category where tenants can pop in and out of it from a GAAP perspective. So there’s criteria that you need to set. So generally we look to see that the tenant remains current on their base rent for six months to nine months. And so we’ll continue to monitor that trend. I do anticipate that in the second half of the year, there will be some of our tenants that make up that 8.8% of ABR, that Glenn mentioned, that will be coming out of cash basis. But just something to keep in mind when thinking about that, just because a tenant comes out of cash basis, obviously, as I said, they need to be current on their rent. So the impact that you’re going to see on credit loss is very minimal, right, because they’re actually paying. Where you may see some sort of FFO impact really on the straight line side, which although I wish that was cash, it’s not, but there could be an FSO impact from that.

Thank you so much for the clarity.

The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Hi. Good morning. In the beginning, in the prepared remarks, I can get touched briefly on the redevelopment opportunity that Kimco had. So I was wondering if you could give more detail on kind of the depth of that opportunity and I know you’re working on a number of large mixed use projects, but even just the smaller ones, how much of that activity do you expect you could complete each year and what types of projects are most appealing?

Sure. Hey, Caitlin. So on the redevelopment side we continue to see a lot of opportunity. We continue to look for what’s the highest best use of our real estate. And what we’ve seen is, we’ve been averaging around 700 to 1,000 multifamily units a year that have entitlements. And so we continue to think that’s a great use of our sweat equity to create opportunity for future value creation on the asset and then activate that at our when it’s the best time to do so. On the smaller redevelopment side, clearly, those are ones we get the best bang for our buck, where we’re on average returning over 10% on invested capital. So we continue to monitor and mind the portfolio for those. Typically, it’s adding a pad out in front with a drive-through or expanding a shopping center in some way, shape or form. And those continue to be right around, I would say, between $8 million to $100 million a year of capital investment. Now, we’d love to do more of that. Clearly, it’s the -- some great returns on capital and we’ll continue to try and look for those opportunities going forward. And then on the larger scale redevelopment projects, we continue to look through our portfolio, and say, what’s the best way to activate these projects and we want to be mindful of the fact that, we have a lot of opportunity, but there’s different ways to structure those opportunities. And so you’ve seen this do it in the past where we’ve sold entitlements, typically office entitlements, we’ve ground lease entitlements, those sometimes are multifamily projects or joint ventures and done projects that add a nice live workplace experience to the to the shopping center. So we’ll continue to do that. As you know, we’ve done a lot of work on entitlements already for up to 5,000 apartment unit entitlements and continue to think that’s a great use of our time and effort going forward.

Just to clarify, you mentioned on the smaller ones was that $80 million to $100 million per year?

That’s correct.

Okay. Okay. And then maybe a question just on leasing volumes, you guys pointed out that for the second quarter, historically, 2Q 2021 was 11% higher than that historical level. So I was just wondering if you expect the above historical average leasing activity could continue through like mid-2023, as occupancy comes back or do you think the current strength is more of that, like, a quick bounce back and then it could slow to more historical levels?

Yeah. I mean, obviously, when you hit a peak, it’s a peak, right? I mean, if we’d never achieved that level. So, yeah, we are very proud of that effort in Q2 to meet or exceed that on any given quarter is obviously been a big effort and so we’d anticipated, probably, being a little bit less. But with the demand side, as we’ve mentioned earlier in some of our other marks, it’s very, very strong. So we still anticipate growth over the next year and a half to two years with retail demand in place.

Yeah. Caitlin, I think, the way we continue to think about it is, you’ll see anchors lead the way until it hits that sort of historical high occupancy levels. And then once that hits that you’ll hope you’ll see the small shops actually start to pick up the slack. And so that’s the way we think about it. Typically, the small shops around an anchor lease up once the anchor has been leased and so that’s what we continue to think will play out.

All right. Thanks.

The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Good morning. Good morning out there. So two questions, first, on the cap rate side, you guys did the prep deal [ph] in San Antonio. And just curious, when you -- as you guys see the acquisition market, are you seeing sellers maybe reluctant to sell because either they want to stabilize their NOI or they view the cap rates to accel in which case, we should expect to see more sort of partial investments like prep deals or JV stakes with the option to buy out eventually or do you see that sellers are willing to just outright transact even though there’s a view that the fundamentals are getting better and that cap rates are going to continue to compress?

I think it’s every circumstance is a little bit different. So as evidenced by the amount of transactions that have occurred, there are plenty of owners that are willing and have been executing on dispositions. They see that -- the market continues to work in their favor. The finance ability of these assets has never been greater with interest rates where they are. So it is a very good time, if you’re a seller to take advantage of all time low interest rates and thus cap rates. At the same time, there is an opportunity for owners that have the capital and the financial wherewithal to reinvest in assets to try to stabilize cash flows, if they were be down a little bit during the COVID, depending on what type of tenancy they had. So you’re seeing certain decisions potentially being delayed for a period of time. And you always have to compete with the opportunity for an owner to refinance their assets, because as I mentioned, the finance ability of those assets is very much available. So every circumstances you need, but we’re finding plenty of opportunities. We do think that we’ll continue to see structured investments with the preferred equity and the mez financing present themselves will continue to be very disciplined and only look to invest in those assets, where we feel very good about the basis, our current return and then, of course, it has to check the box as to an asset that we would potentially look to own in the future and that’s where we secure a right-of-first-refusal or write-of-first-offer. So we’ve intentionally not put out any sort of mandate on the amount that we’re going to invest in that program, but to the extent that those opportunities present themselves, we’re ready and excited to do that.

Okay. And then the next one is, oh, sorry, go.

Yeah. Go ahead, Alex.

Okay. Thanks. Sorry. Next question is for Glenn, just, sorry for all the confusion. I didn’t go to CPA school. So apologize on accounts receivable and reserve rents. But big picture, you’re collecting north of 96% of the rents and yet you have 51% of your AR reserve. So big picture, what it sounds like is that basically almost all your tenants are healthy operating, it’s just a matter of when you can get paid up for past bills. And then that comes down to, I guess, either a payment plan or if you guys are going to say, look, for a tenant who just doesn’t have the wherewithal to pay the back stuff, just wash that clean, pay the rent going forward. So just trying to reconcile sort of north of 96% collected but you have 50% reserved?

Yeah. No. It’s a good question Alex. To help you a little bit, 36% of it -- of the AR is the cash basis tenants that hasn’t paid yet. So a big portion of the reserve is really related to the cash basis tenants. The other portion of the reserve just comes down to timing and our own policies around TAM and tax bills and disputes. So those are really the two big pieces that make up with the reserves. So that will [inaudible].

So the 36% of AR, that is part of that little 4% of rent that hasn’t been collected.

Well, the third, again, when you look at total AR, it’s a combination. Month-after-month, what hasn’t been collected. Some of it, it’s fully reserved, well, remember all cash basis tenants that have an aid, they’re 100% reserved. So it’s a buildup of total.

Right. But basically some of those tenants are still in the portfolio. They may be paying you now. So I mean, when you say 96% collected in the second quarter. That includes cash basis. That’s what I’m just trying to understand?

Yeah. That includes the cash basis and it’s that paid. So as we mentioned, 8.8% of the tenants are the ABR that we have is on a cash basis, of that amount, 77% of those tenants paid during the quarter. There was about, I think, the numbers, I think, is about $9 million that wasn’t paid by those cash basis tenants during the quarter and they’re fully reserved in the number.

Okay. So that’s the 36% in other words.

In total that -- when you look to total AR numbers, 36% is related to cash basis tenants. So we’re still accruing them. They’re just fully reserved.

Okay. Okay.

But that have -- that 36% is a cumulative number. So…

Okay.

… during when COVID was really high back in Q2 and Q3 of 2020, that AR wasn’t at the 96%. It’s still in the high 9 -- in the high 80%s. So that balance is still sitting in that AR. So you’re putting a reserve on that old balance as well. And then to your point…

Okay.

… that baked was in the 96% continues to get a reserve on it.

Okay. Awesome. Awesome. Listen, thank you very much.

The next question comes from Wes Golladay with Baird. Please go ahead.

Hey. Good morning, everyone. I just had a question on when do you think paid occupancy will bottom and how much of an impact will the eviction moratorium -- moratoriums have on occupancy? And then one last one there would be, you still have a lot of abatements about $5 million, when will those start to burn off?

I am sorry, I just missed the very first part of that it was a word and then occupancy…

Oh! Yeah. I am looking for -- yeah, paying occupancy. When do you think that will bottom? I understand that you have some people that may still be in the occupancy number, but there could be an eviction moratorium…

Got it.

Just trying to quantify the…

Got it.

… impact of that and actual, yeah.

Yeah. Sure. I mean, at this point, that -- the impact of that should be fairly small, tiny material. There are obviously moratoriums on the West Coast that are still in place that I believe California lifts towards the end of September. So we would anticipate but there’s some modest impact to that, but nothing that would be live too meaningful on a go forward basis. And what was the second question -- second part of your question.

Yeah. The second one was regarding the abatements. You still have some abatements running through the numbers, just seeing when those will end?

Yeah. We anticipate that those will start to trail through Q3 and Q4, I mean, that as we’ve gone through the majority of the impacts of the pandemic at this point.

Yeah. Just to give you a little bit further color. The abatements that were booked during the third quarter were $5 million, but only about $2 million of that related to second quarter rents. So to Dave’s point, it’s really starting to whittle down and we expect it to be lower as we go through the balance year.

Okay. Got it. Yeah. Thanks for the color on that. And then, I guess, one more big picture question. Do you have a sense of what percent of the new leasing has been driven by demand that emerged during the pandemic such as the last mile, the first-ring suburb and is it more concentrated in shops or anchors at the moment?

Well, our demand, obviously, the increase in the occupancy of the anchors, you can see it more on the demand side with the anchors, which was anticipated, they usually have a quicker recovery rate then we’ll be trailed by the small shops. It’s really hard to narrow it down to whether or not it was as a result of one specific category of last mile distribution and pandemic demand versus just general growth and revision or adjustment to their retail strategy. But it’s really a combination of all these things, referencing back to a few of the points I made earlier between identifying lessons learned to historic growth opportunities to expansion in new markets and sort of all culminates into higher demand.

Got it Thanks everyone.

The next question comes from Haendel St. Juste with Mizuho. Please go ahead.

Hey. Thank you. So I appreciate the comments earlier about your desire to pursue more preferred investments as they present themselves, but I haven’t heard any mention of the returns there. So maybe can you share more on the return on the investment in that The Rim asset the $55 million there? What are the returns you’re targeting there and how do they compare versus comparable asset quality acquisition deals? Thanks.

Sure. Yeah. And each deal, obviously, is individual negotiation. But I would say from a more macro level, the difference between preferred and mezzanine. In the preferred investments, we typically look for a high single-digit current return on our investment, but we do participate in the back end profit assuming that the asset performs the way that we’ve underwritten, there’s usually back end participation that can juice that return somewhere into the teens from an IRR perspective. On the mezzanine financing, oftentimes those are higher coupons, but don’t necessarily have the back end participation. So we’re getting double digits current or sometimes even into the teens. But it very much depends on each asset. As it relates to The Rim, that one is a preferred equity investment. So like I said, we got very high single digits current. But when we look at the opportunity on that asset and some of the things that we think can occur in terms of occupancy increases and maybe some repositioning, and just the general strength of that asset in the market, we think that we will certainly see some participation on the profit on the back end. So typically looking for at a minimum teens IRRs.

Great. Great. That’s helpful. Appreciate that. And just going back to Albertsons for a second, I am curious and understand there’s no need to tap into the stock here, given the lack of near-term debt maturities, the liquidity you talked about before. But I guess I’m curious under what scenarios that thinking could change, are you waiting more for opportunistic deals to perhaps fall in your lap or is it waiting maybe another year or two and as you start to approach some of those debt maturities. Just curious as you have this liquidity, how the available options that you’re considering could, perhaps, drive a change in thinking there? Thanks.

No. That’s a great question, Haendel. I mean, the good part, as you point out is, there is very little in terms of debt maturities in the near-term. So there’s no emergency or real need necessarily today to monetize it. Two, we still have to manage our re-taxable income position. The good news is the -- and I think we’ve talked about this previously the built-in gain actually burns off next month. So the federal income tax piece of it is no -- will no longer be an issue. But we still have to manage our re-taxable income. In addition, there still are certain lockups related to our investment with our partner. So in order to monetize it today, we would need, it would be subject to a marketed sale and in agreement with the rest of our partners. Come June of 2022, there are no further restrictions on the investment. And then we’ll also and when we look at the 2022, we know we have two preferred that are callable, we have a bond that will come due. So there’s lots of opportunities to use that capital to further deleverage balance sheet.

Got it. Got it. Thanks, guys. It sounds like it’s more of a 2022 event at this point based on what you’re looking at. Okay. Thank you.

Sure.

The next question comes from Floris Van Dijkum with Compass Point. Please go ahead.

Thanks, guys. Quick, I guess, a follow up question in terms of cap rates. I understand saying, there’s big institutional portfolio from Bentall Kennedy. I think it’s just trading or about to trade $800 million price tag, sub-5.5 cap rates from market sources. As you look at, obviously, Weingarten you’re buying at a higher cap rates. Do you think there’s -- the disconnect between private and public real estate, can you maybe give some comments on that? Also what kind of implied cap rates are you valuing The Rim transaction at and maybe, you mentioned something else about JVs. Obviously, your JV assets better than others. As you look forward, is there an opportunity to buy out JV stakes in your portfolio and for that matter in the Weingarten portfolio, which has I think something like 39 or 31 or somewhere in that neighborhood of JV assets? And if you can comment on that and do you have provisions in there, whether you have to right-of-first-offer in your JVs typically?

Sure. Happy to address some of that and I’m going to kind of keep it at a high level rather than comment directly on the Weingarten specific questions. But there’s no doubt that we think that there’s still a disconnect between public and private pricing. When we look at NAVs of ourselves and some other peers versus like you said, some of the transactions that are happening in the low 5s and we’re also starting to see them dipping into the high 4s, there is still very much a spread between those two. But the BentallGreenOak portfolio, very high quality, grocery-anchored products and was not surprising to see a very strong demand and many bidders and multiple rounds of bidding, before that deal was ultimately awarded and I think we’re going to continue to see more of that. In terms of partnership buyouts, I mean, that is something that, we have taken advantage of in the past. Oftentimes, it’s difficult to model or forecast or predict when those opportunities present themselves, all of our partners have different investment horizons and reasons for why they may look to exit. But we do stay ready. We stay in very close communication with our partners and we have a pretty good sense as to when they may look to exit or what might trigger that. And as I mentioned in the prepared remarks, we do think that there’s going to be some of that in the relatively near future. And as it relates to our ability to have sort of a right-of-first-offer, right-of-first-refusal, there’s no doubt that for these assets that we’re managing and that we’re operating day in and day out, we are the logical buyer, we can move quicker than any other third-party can, given the fact that we know the assets inside and out. So typically, it’s a win-win, if it’s an asset that we view as a long-term hold. And for one reason or another, our partners looking to exit, it’s a great chance for us to buy out the remainder and for our partners to have a very smooth and quick execution. So, again, we’ll see more of that as time goes on over the next year or so.

Thanks. Thanks, Ross. Maybe -- do you see anything imminent happening in any of these potentially in your JVs over the next 12 months?

I think that’s very possible.

All right. Thanks.

The next question comes from Mike Mueller with JPMorgan. Please go ahead.

Yeah. Hi. Just a quick one on guidance, so it looks like ex the Weingarten charge, the midpoint of guidance went up around $0.08. I’m assuming about $0.02 of that is tied to the prior period collections. But can you walk through the major components of that increase?

Sure, Mike. The bulk of it really is coming from just the improvement in credit loss. That’s really the driver. So we had credit loss built in, in our guidance over long credit loss in total including the impact on straight line rents for the quarter was about $800,000 versus what we had been budgeted. So the bulk of it really is coming from credit loss improvement. That’s the driver.

Got it. Okay. That was it. Thank you.

The next question comes from Chris Lucas with Capital One. Please go ahead.

Good morning, everybody. Hey. Just two follow up questions. Glenn, just going back to the guidance as it relates to the bad debt number you have provided earlier, over a range of $5 million to $20 million for the back half of the year. Are there any offsets to that meaning like prior period rent or deferral payments that are included in that sort of that offset that number, is that a gross number?

No. It’s all built into that, Chris? We’ve been, as we mentioned, we collected $7 million of rents from prior periods. But also during the current quarter, there are cash basis tenants that didn’t pay. So that, as I mentioned, we collected 77% from the cash basis tenants, of the 23% was not collected, so we’ll have to see how that goes during the third and fourth quarters. But the expectation in guidance is that at the high end of our range, we would incur a total of about $5 million of credit loss and towards the lower end of the range, it could be as much as $20 million. But again, based on where things are headed today, we feel more comfortable towards the upper end of the range.

Okay. And then just on the move from cash to accrual, the straight line impact that was mentioned earlier is a possible tailwind? Is that -- do you have an assumption built in on that as it relates to your guidance as well?

That, no, we really haven’t, because we haven’t...

Okay.

Today we really don’t know exactly who we’re going to move in when we’re going to move them. So we had not built that in. So should we start moving some in, in this straight line, there would be some uplift from straight line rent.

Okay. And then last question for me, Conor, you’ve talked about the tenant demand. And I guess I’m just trying to think through this whole process of how much insight you have, how much sort of visibility you have in terms of demand, given that, I’m assuming that, retailers are making their open to buys this year for store openings in 2023, 2024 and given what you’re hearing from them. What’s your confidence level that this demand remains as strong as it has been so far first half of 2021?

Yeah. That’s right, Chris. We have -- since we’ve been virtual for most of this pandemic, we’ve been able to do more virtual portfolio reviews and talk with more tenants on the regular on expansion plans and looking for space throughout the portfolio. One thing -- you’re right about the cadence there, but one thing we’ve found is that, many of our retailers that are well capitalized have actually come to us, and say, hey, we actually need a few more deals for this year or we need. So there’s actually a bit of that going on as well. So it’s broad based, which I like to see. Clearly, grocery is continues to expand and is quite hot. But then you’ve got the other categories that we’d like to see that compliment the cross shopping, which typically is led by off price and then you’ve got the home improvement, home goods section continues to be very, very strong and it goes on from there. And the interesting part, I think, is the pent-up demand for probably the most impacted categories that we’re seeing. So the entertainment, the fitness and the restaurant side of it have really come back strong, faster than we anticipated and we think that that bodes well for the recovery of those sectors. And obviously, we’re not out of the woods yet, as I mentioned in my prepared remarks, and we want to be careful about how we talk about the future, because we still got the Delta variant that’s causing a lot of issues. But we have a playbook now. We have the Kimco branded curbside pickup program that’s on the entire portfolio. And we have a battle tested team that I think can really manage through this. And the customer is more aware of how to go about utilizing last mile retail in more ways than one. So I think our portfolio is well positioned to weather these, whatever storm comes our way.

Thank you.

The next question comes from Linda Tsai with Jefferies. Please go ahead.

Hi. Good morning. Based on your earlier comments seems like there’s a pull-forward of demand for core assets, given the validation of necessity based in grocery-anchored retail and then still low interest rates. How does that impact your view on potentially increasing disposition activity in this favorable environment?

It doesn’t really move the needle for us in that regard. We look at the portfolio every day, every week. We look at where there’s risk, where there’s opportunity, where there’s concern, where demographics may be shifting and that’s really what motivates our decisions. The good news is that, we’ve done a tremendous amount of heavy lifts over the last five years to seven years to put the portfolio in the position that it’s in. And when you look at the numbers that we were able to put out this quarter, I think, it speaks to the fact that the portfolio is in very good shape, it’s performing well and will continue to prune here and there where we see specific assets that don’t necessarily make sense from a long-term bold scenario. But when we think of it from a macro level, it doesn’t move our decision making and feeling very confident in the portfolio that we deliver.

Yeah. Linda, I would just add that, it’s been -- we’re in a very fortunate position, right? We’ve gone through a massive transformation of the portfolio. We’ve de risked the portfolio. We’ve really -- now we’re at a, I think, a sweet spot where we can look and see across the portfolio that where -- what sites are flattish in terms of growth and use those for recycling capital. And it’s -- they’re not necessarily low quality, because some of those might be single tenant type ground leases or some of those might be assets that we’ve squeezed all the juice out of. But we’re in a very fortunate position to be where we are, as our disposition strategy can be used for incremental growth.

Thanks for that. And then when you think about last mile distribution, seems like most resale -- most retailers start with making changes within the four walls of their existing boxes to accommodate on site fulfillment. That said, are you seeing more instances of retailers making physical changes to existing boxes vis-à-vis physical expansions?

Yeah. It’s either expansion or modification of utilizing the square footage within the four walls. Some examples are those that create a pickup point, obviously, in front of the store. We’ve all seen it. If you go to a restaurant, shop or otherwise, they’ve just -- a couple shelves that to do the curbside pickup or just the walk in and pickup, but on the back of -- back a house with some of the bigger formats, they repurpose some of their back a house for distribution of fulfillment, while others are still doing pick and pack within the stores. So, again, each retailer is trying to do what’s best for them based on how they logistically are set up. And I think we’ll just continue to see this trend evolve, later on technology and the efficiencies there to manage stocking and inventory levels. It’s going to be, I think, a hyper efficient system as we progress through the coming years.

We’re starting to see some tenants and this is early, but starting to see them use adjacent space for almost like sortation centers. So that’s an incremental net new demand factor and we’re watching that closely to see if that’s going to have an impact and hopefully it’s a new demand source for us.

Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to Dave Bujnicki for any closing remarks.

I just want to thank everybody that participated on the call. We hope you enjoy the rest of your day. Take care.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.