Kimco Realty Corp

NYSE:KIM

Earnings Call Analysis

Kimco Realty Reports Strong Q2 Results, Increases Full-Year FFO Guidance

Kimco Realty demonstrated resilience in Q2 2024 with a 5.1% increase in FFO per share, reaching $0.41. The company highlighted robust leasing activity, leading to a 3% growth in same-site NOI and increased occupancy. The RPT acquisition significantly contributed $38.3 million to pro-rata NOI. Kimco successfully raised its full-year FFO guidance to $1.60-$1.62 per share, driven by same-site NOI growth projected at 2.75%-3.25% and improved cost synergies from the RPT acquisition. The company remains confident, projecting 2024 acquisitions between $300-$350 million, despite reducing disposition guidance to the same range. Liquidity continues to be strong with a solid balance sheet and a lower debt-to-EBITDA ratio.

Strong Portfolio Performance and Positive Leasing Activity

Kimco Realty has demonstrated robust performance in Q2 2024, propelled by its high-quality, grocery-anchored portfolio. The company's rental activity was positive, resulting in increased occupancy and high leasing spreads. Kimco reported a 5.1% growth in Funds From Operations (FFO) to $276 million or $0.41 per diluted share, up from $243.9 million or $0.39 per share in the same period last year. This increase was due primarily to contributions from recent acquisitions and higher rental income.

Acquisitions and Structured Investments

The company has been active in both structured investments and targeted acquisitions. Notable transactions include $8 million in mezzanine financing for a Giant Foods grocery-anchored center in Alexandria, Virginia, and $10 million for acquiring a Sprouts grocery-anchored center in Atlanta, Georgia. Additionally, Kimco funded a $146 million senior loan for The Rim in San Antonio at a 9% interest rate, and converted its $50 million preferred equity position in The Rim to mezzanine financing for better capital stack control. The company is confident in achieving its 2024 acquisition target of $300 million to $350 million.

Financial Metrics and Guidance

Kimco ended the quarter with net debt-to-EBITDA ratios of 5.5x consolidated and 5.8x including pro rata JV debt and preferred stock. The company increased its $200 million term loan by an additional $300 million, swapped to a fixed rate of 4.78%, and used part of the proceeds to repay higher-coupon debt. Kimco also achieved its greenhouse gas emission reduction targets, which resulted in a reduced borrowing spread on its credit facilities. The company raised its FFO per share guidance for the full year to $1.60-1.62, up from $1.56-1.60, and increased its same-site NOI growth assumption to 2.75%-3.25%.

Operational Strength and Leasing Highlights

During Q2, Kimco signed 144 new leases covering 669,000 square feet with impressive rent spreads of 26.3%. Renewals and options continued to trend positively, resulting in a total leasing volume of 2.3 million square feet and a combined rent spread of 11.7%. This activity drove pro rata occupancy to 96.2%, with anchor occupancy at 98.1% and small shop occupancy matching a record high at 91.7%. The addition of the RPT portfolio has further validated Kimco's acquisition strategies, showing strong rent spreads and NOI growth.

Market Trends and Retail Demand

Kimco’s focus on necessity-based, grocery-anchored retail helps it thrive regardless of economic conditions. The current environment, characterized by strong job and wage growth, complements the company’s demographic and regional strengths. The labor market’s resilience and consumer rotation towards value retailers like Walmart and Costco align well with Kimco’s tenant base. Nationally, store openings are outpacing closures, and the lack of quality retail spaces is positively impacting tenant bankruptcy auctions.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Kimco Realty Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to David Bujnicki, Senior Vice President and Investor Relations Strategy. Please go ahead.

[David Bujnicki, executive]

Good morning, and thank you for joining Kimco's quarterly earnings call. The Kimco management team participating on the call today include Conor Flynn, Kimco's CEO; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, our CFO; and Dave Jamieson, Kimco's Chief Operating Officer; as well as other members of our executive team that are also available to answer questions during the call.

As a reminder, statements made during the course of this call may be deemed forward-looking. And it is important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to the company's SEC filings that address such factors.

During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website.

Also, in the event our call was to incur technical difficulties, we'll try to resolve as quickly as possible, and if the need arises, we'll post additional information to our IR website.

And with that, I'll turn the call over to Conor.

[Conor Flynn, executive]

Thanks, Dave, and good morning. I will begin with an overview of the Kimco consumer, provide an update on the favorable supply and demand environment for our business and then share some highlights on our strong operating results, all of which will underscore the resiliency of our high-quality, grocery-anchored and mixed-use portfolio. Ross will also cover the current transaction environment, and Glenn will provide additional financial metrics, report on our balance sheet position and provide our updated outlook.

We continue to navigate an economy that gives off mixed signals. The recent Bloomberg report noted that the American consumer savings have declined with the excess savings cushions that have been built up during the pandemic and used to offset rising prices that are no longer available.

On the other hand, the labor market remains strong, reflecting both job growth and wage growth in the areas of our portfolio is situated. This has led the consumer to remain resilient as they've tempered spending, but not retrenched.

As JPMorgan recently reported, the consumer is now rotating towards staples and seeking value at Walmart, Costco and off-price retailers who are gaining market share. As such, we've benefited from the needs-oriented nature of our portfolio, as over 83% of our annual base rents come from grocery-anchored, open-air shopping centers. It is also why traffic at our properties has increased both sequentially and year-over-year.

This has translated positively to our operating fundamentals as our leasing team is firing on all cylinders. Demand for our well-located product remains strong as tenants seek to retain existing space or add new locations. Our retention levels are near all-time high, with heavy competition for any vacancies, generating increasing rents, better credit and higher valuations. Nationally, store openings are outpacing closing, and the lack of quality retail is having a positive impact on tenant bankruptcy auctions, as leases are being acquired by healthy tenants striving to meet their expansion goals.

In terms of new retail supply, the outlook remains in our favor. It has been well documented that shopping center development, which currently stands at approximately 0.2% of existing inventory, remains exceedingly low. The shopping center sector has been sub-1% since 2010, and has provided the retail sector a meaningful tailwind to drive record low vacancies across the country.

More importantly, we don't see this dynamic changing anytime soon. As we have previously noted, rents would need to increase upwards of 35% to make new development investment worthwhile. This assertion was recently validated by a notable REIT equity research firm, which calculated that the range of rent increases required to stimulate accretive development in the top 50 markets needed to be between 35% to 55%. All of this highlights the strength and unique position of our portfolio.

As I noted, with our focus on grocery-anchored, necessity-based off-price retail, we are able to generate solid results in all kinds of economic weather. This includes uncertainty of national elections and potential policy shifts, predictions of hard or soft landings and the like. Our company, which features a resilient well-located portfolio and strong demographic trade areas, solid balance sheet and best-in-class team, stands out.

To further illustrate this point, now let me touch on a few operating highlights. During the second quarter, we signed 144 new leases, totaling 669,000 square feet of pro rata GLA with rent spreads of 26.3%, our 11th consecutive quarter of double-digit new leasing spreads.

Renewals and options continued their positive trend with 338 renewals and options completed at a spread of 9%. Overall deal volume totaled 2.3 million square feet, with combined rent spreads of 11.7%.

Leasing velocity and retention drove pro rata occupancy higher by 20 basis points sequentially to 96.2%. Pro rata anchor occupancy increased 30 basis points from last quarter to 98.1% and was up 40 basis points year-over-year. Small shop occupancy increased 20 basis points sequentially to 91.7%, matching our all-time high set in Q4 of 2023 and representing an increase of 70 basis points year-over-year.

Of note, we continue to derive meaningful outperformance from the RPT portfolio, which further validates our acquisition thesis. We executed 9 new leases in Q2, with comp rent spreads of 146%, driven by a grocery-anchored replacing a furniture store and a strong fitness operator replacing a weaker fitness credit.

We also executed 24 renewals and options during Q2 at a 17% average spread. Year-to-date, we have executed 19 new leases at former RPT sites with spreads of 87% and 46 renewals and options with spreads of 14%. The former RPT portfolio also produced same-site NOI of 4.5% for the quarter and 3.7% year-to-date, meaningfully outperforming our underwriting. We also increased our cost saving synergies to be realized this year as well as additional future revenue opportunities stemming from increasing the RPT small shop portfolio, which currently sits at over 400 basis points below Kimco's. Additional growth in ancillary income will also be generated by our specialty leasing program.

In closing, we are enthused by the performance of our team and our portfolio, resulting in increases to our FFO and same-site NOI outlook. The growth profile of our portfolio continues to trend up, and our team continues to look across the investment spectrum for new growth opportunities, all while remaining vigilant on costs. Ross?

[Ross Cooper, executive]

Thank you, Conor, and good morning. I hope everyone is having a wonderful summer.

On last quarter's call, we talked about the solid fundamentals of the open-air retail format. We further discussed the volatility in the capital markets and how it has tempered the transaction environment. While those same themes continue to persist, we are positioned to take advantage of dislocations within the market to invest accretively given our favorable access to capital and multiple investment platforms.

We continue to see unique opportunities on both the structured investment side as well as via targeted acquisition opportunities for larger format open-air centers. And in the second quarter, we funded several new structured investments that all have unique attributes, but share a general theme of high-quality real estate, accretive yields and a right to acquire if they are marketed for sale in the future.

I'll touch on 3 of the more significant transactions. We provided $8 million of mezzanine financing for an infill core Giant Foods grocery-anchored regional center in the dense market of Alexandria, Virginia, $10 million of mezzanine financing for the acquisition of a Sprouts grocery-anchored center in Atlanta, Georgia, and we also funded a senior loan at The Rim in San Antonio for $146 million at a 9% interest rate. We also converted our existing $50 million preferred equity position in The Rim to mezzanine financing, giving us greater control of the capital stack on a trophy asset that is one of the most visited properties, not just in Texas, but all of the U.S..

On the acquisition side, we are encouraged by the deal flow and the possibilities as pricing is moving closer to our hurdle rates. While neighborhood grocery-anchored centers in our core markets remain aggressively priced, in the 5% to 6% cap rate range, larger format assets in similar geographies with solid demographics and densification opportunities are trading at higher cap rates due to their operational dynamics and the larger check sizes.

These unique attributes align well with the Kimco platform and is a differentiator that we believe allows for a better risk-adjusted return for our shareholders. We remain confident in achieving our 2024 acquisitions range of $300 million to $350 million, that is inclusive of structured investments.

As it relates to dispositions, following the completion of the $248 million of RPT asset sales in the first quarter, we have substantially completed our 2024 plan. Any dispositions in the second half of the year will be very modest and at a much lower cap rate. Therefore, we have reduced our disposition guidance for this year to a new range of $300 million to $350 million, which is net neutral with our 2024 acquisition target with a slightly lower blended weighted average cap rate.

Now on to Glenn for an update on the financial aspects of the quarter.

[Glenn Cohen, executive]

Thanks, Ross, and good morning.

Our high-quality operating portfolio generated strong second quarter results, as we maintained a strong balance sheet and enhance our liquidity position. Highlights for the second quarter include continued positive leasing activity, producing increased occupancy, another quarter of double-digit leasing spreads and solid same-site NOI growth.

Now for some details on our second quarter results. FFO was $276 million or $0.41 per diluted share as compared to last year's second quarter results of $243.9 million or $0.39 per diluted share, representing per share growth of 5.1%. We produced $387.9 million of total pro rata NOI in the second quarter, an increase of $45.8 million over the same period in the prior year. This growth was driven by $38.3 million of pro rata NOI from the RPT acquisition, $12.8 million from higher minimum rents and $1.6 million from higher net recoveries from the balance of the consolidated portfolio.

These consolidated NOI increases were impacted by lower percentage rent and other income of $3.5 million, which was mostly due to timing and higher credit loss of $1.4 million. Our credit loss for the first half of the year was 86 basis points, the midpoint of our bad debt assumption.

The net NOI increase was offset by greater pro rata interest expense of $14 million due to the higher interest rate on the $500 million bond issued in the fourth quarter last year related to the refinancing lower coupon debt, $510 million of additional debt in connection with the RPT acquisition and lower fair market value amortization related to the payoff of The Wine Garden bond.

The operating portfolio continues to produce strong results, as Conor outlined. Same-site NOI growth was positive 3% for the second quarter. The primary driver was higher minimum rents contributing positive 3.4%, driven by quicker rent commencements from the signed, not open pipeline, which compressed 10 basis points from last quarter to 320 basis points.

At the end of June, the signed, not open pipeline represents 426 leases and $63 million of ABR, of which $30 million is expected to commence in the second half of the year, generating $8 million for the remainder of the year. For the 6 months of 2024, same-site NOI growth was positive 3.4%. These results demonstrate the continued strength of our well-located portfolio.

Turning to the balance sheet. We ended the second quarter 2024 with consolidated net debt-to-EBITDA of 5.5x. On a look-through basis, including pro rata JV debt and perpetual preferred stock outstanding, net debt-to-EBITDA was 5.8x. These metrics would have been one tick better if we included the full quarter of income from the $146 million structured investment in The Rim shopping center made in late June.

Subsequent to quarter end, we increased the size of our $200 million term loan by an additional $300 million. The term loan has a final maturity date in 2029, and we swapped the $300 million to a fixed rate of 4.78%, including our credit spread for the full term. We used the proceeds to repay $220 million outstanding on our $2 billion revolving credit facility, which had a borrowing coupon of 6.19%. The balance of the funds was invested in an interest-bearing account earning in the mid-5s pending use for investment.

Separately, we achieved the high end of our sustainability goals by surpassing our required Scope 1 and Scope 2 greenhouse gas emission reduction targets. As a result, the borrowing spread on our $2 billion revolving credit facility and our $310 million term loan is reduced under the green pricing feature. The reduction is 4 basis points from the stated credit spread for both facilities, and we get a 1-basis-point reduction in our facility fee on our revolving credit facility.

Now for an update on our outlook. Based on our strong first half results and our expectations for the balance of the year, we are again raising our FFO per diluted share range from $1.56 to $1.60 to a new range of $1.60 to $1.62.

Our increased FFO per share guidance range incorporates the following updates to our full year assumptions. Same-site NOI growth of 2.75% to 3.25% from the previous level of 2.25% to 3% and is inclusive of the RPT assets and a credit loss assumption of 75 basis points to 100 basis points; full year cost savings synergies from the RPT acquisition improving to $35 million to $36 million; interest income expected to be between $13 million to $15 million; and lower disposition guidance of $300 million to $350 million. Our other full year guidance assumptions remain intact.

I want to thank all our associates whose efforts significantly contributed to our outstanding results. We are well positioned to deliver growth.

And with that, we're ready to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Michael Goldsmith with UBS.

[Michael Goldsmith, analyst]

My question is on the guidance. And you took the FFO guidance higher to $1.60 to $1.62, and that was supported by both the higher same property NOI expectations as well as some other moving pieces.

So can you just kind of walk through like how much of a contribution of the FFO guidance is driven by the same property NOI? And then what are the other pieces that are driving the forecast higher?

[Glenn Cohen, executive]

Michael, the primary driver really is the operating portfolio. Again, we -- our rent commencements have been quicker than what we had originally forecast. That's a major driver. And that also drives same-site NOI growth because it's cash based.

Expense control is another piece. So we've been really very focused on expense control, both at the property level and the G&A level. Those are the primary drivers, but it's really coming from the operating portfolio.

[Conor Flynn, executive]

Yes. I would also say, Michael, that as we talked about, it's also the RPT. We've had better execution than planned. So that's doing well for us as well from the guidance increase.

[Michael Goldsmith, analyst]

Just as a related follow-up here though. You've done same property NOI of 3.4% for the first half of the year. The guidance assumes that decelerates in the back half. Can you kind of walk through what are the factors that are going to drive that deceleration in the back half of the year?

[Glenn Cohen, executive]

Yes. I mean, again, we've increased the guidance range of same-site now twice during the year. Again, the portfolio is performing very well. We do have a tougher comp in the third quarter of last year based on some onetime things that were in there that has a little bit of an impact. But overall, we feel very comfortable with the revised guidance range that we've put out.

[Conor Flynn, executive]

Yes. And we also -- we look at same-site as an annualized number. There's always -- as Glenn mentioned, there's noise quarter-to-quarter timing of expenses, recoveries, et cetera. Really, it's always intended to be an annualized number. So when you look at the annual outlook and we've increased that guidance, is a good indication of the direction we feel we're going.

[Operator]

Our next question comes from Samir Khanal with Evercore ISI.

[Samir Khanal, analyst]

Conor, you spoke about the RPT portfolio, the 400-basis-point spread in shop occupancy. I guess just trying to understand kind of the ability to close this gap. I mean what's the timing on this, considering that I would imagine some of that is probably harder to lease space, right? You need some capital spend on that for anchor repositioning. So help us walk through kind of how to think about that closure of the gap over the next several years?

[Conor Flynn, executive]

Yes, happy to, Samir. Look, we look at that vacancy as real upside. So when you look at the SNO pipeline or the signed, not open pipeline of the former RPT portfolio, that's what's really getting compressed. So we were driving that the first 2 quarters, and that's why you saw over 4% same-site NOI in that portfolio for the second quarter.

Now as those anchors start to come online, that's when you're going to start to see the pickup in the small shop leasing because typically, you want to have an operating anchor that's easier to fill around where you can mark-to-market those rents around the former vacancy. Whereas previously, if you have a vacant anchor box, it's a lot harder to lease the small shops around that vacancy.

So we do anticipate because we have seen it in our own portfolio, the small shop leasing continuing to show the strength and the acceleration, and we are very focused on driving the small shop occupancy in that portfolio because, again, that's where we see upside. That's really sort of the investment thesis that we continue to focus on and execute on.

[Operator]

The next question comes from Dori Kesten with Wells Fargo.

[Dori Kesten, analyst]

The strip had a nice run earlier this week. Based on your discussions with private equity peers, how would you describe interest in the strip today versus, say, 6 months ago? And then how are you viewing your own NAV today versus where you're trading?

[Conor Flynn, executive]

Thanks, Dori. Yes, we've been pretty consistent this year that capital formations continue to accelerate for open-air shopping centers. I think when you look at the recent transactions that have been announced, Cohen & Steers is obviously coming in, in a joint venture to buy a grocery-anchored shopping center.

When you look at the amount of capital formations from the institutional investors, private equity, I mean it's very clear the supply and demand that we've been talking about is starting to come into focus because it's showing up in the numbers and it's really producing significant growth.

And I think the other big piece of it is the cap rates for the product are still relatively attractive when you look at other sectors. And I think that is really driving a lot of interest because of the lack of new supply on the horizon, I feel like that really opens people's eyes back up to the shopping center sector.

[Ross Cooper, executive]

Yes. And I would just add, I mean we have a pretty strong purview given the joint venture partners that we have that are all pretty diverse and have different views on retail. And across the board, what we're seeing is a lot of private equity and other formations that have really gone from, I would say, retail curious to retail active. And that really is something that we think is going to push both cap rates activity and investment in the back half of the year and forward -- and beyond that.

[Operator]

And the next question comes from Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, analyst]

Just curious on the structural investments, if you can comment on the types of opportunities incrementally you're seeing in the market yield expectations. And you kind of mentioned as well, maybe more opportunities for some bigger centers and how we should think about incremental deal flow second half and going into 2025?

[Ross Cooper, executive]

Absolutely. The structured investment is a unique product that every deal is a little bit different. I indicated 3 of the transactions that we closed on in the second quarter. It was a combination of a recap of an existing owner. One was acquisition financing. And then, of course, The Rim was an exciting, unique opportunity where we have the ability to further strengthen our position in a dominant asset. It has a tremendous amount of equity embedded in it and ultimately, could become an acquisition target. So whatever the outcome of that asset and investment is just going to be a positive for Kimco.

I think that on a go-forward basis, as we look at the third and the fourth quarters, our expectation is that our investment activity will be more heavily weighted toward core acquisitions as some of the structured investments have been completed. And again, they're sort of one-off and unique in nature.

But there's definitely a place for our capital within the stack, whether it be repositioning, financing, new acquisitions, as we've seen volumes starting to increase in a lot more optimism as the rate environment and there's an expectation that the cuts might be coming. And there just seems to be a bit more stability and optimism in the environment. So I think that the back half of the year is going to be positive for Kimco.

[Operator]

And the next question comes from Greg McGinniss with Scotiabank.

[Greg McGinniss, analyst]

Ross, just to better understand on the acquisition guidance. The 7.5% blended cap for the year on midpoint, $325 million of investment seems to imply a 0% cap rate on the remaining $80 million. Is there -- I mean it sounds like you're talking about core assets, but are we missing something on the math there? Or is there a plan to buy land?

[Ross Cooper, executive]

It's not -- certainly not a land play. I think when you look at the guidance, it is a blended spread between our structured investments and our core activity. As you've seen, clearly, the first half of the year has been heavily weighted towards structured investments. We do anticipate that in the second half of the year, there's going to be more activity on the core acquisition.

So as we have a little bit more color and clarity on the specifics of the deals that we're looking at now, we'll certainly update that guidance in that range. But with where we sit today and what we know is in the pipeline, we're comfortable with where we sit.

[Greg McGinniss, analyst]

Okay. And then on the development side, culture place seemed to have pretty limited investment this quarter. Is there a slowdown to development happening there? Any color would be appreciated.

[David Jamieson, executive]

Yes. No, we -- right now, we poured the foundation for the parking, the turning parking. And then the ground floor retail, its construction is under way. Just as a reminder for us, it's a preferred equity structure. So our capital investment is limited.

[Glenn Cohen, executive]

As a matter of fact, I'll just add that our capital is actually fully in.

[Conor Flynn, executive]

So you won't see any increase going forward.

[Operator]

And the next question comes from Craig Mailman with Citi.

[Craig Mailman, analyst]

Just to go back to maybe The Rims a bit. You guys are about $200 million of the capital stack now. Could you give us a sense of maybe what the LTV of that overall property is? I mean, given the 9% rate, it seems like -- and versus what others are getting for high-quality kind of strip and open air that seems kind of a high coupon, I mean, is this -- I know you alluded to you guys always look for loan to own, but is this something in the near term you guys could get an equity stake in? How should we kind of think about this particular investment?

[Ross Cooper, executive]

Sure. Happy to. Yes, The Rim is really an exceptional asset. Performs really well. Our partner/borrower has executed on the business plan exceptionally well. Leasing is strong. We're right around 100% occupied there.

Our expectation in terms of recent valuations is that there's at least $50 million of equity in that deal. So when you're looking at it from our position being just under $200 million from an LTV standpoint, we're right at that 80%, which is really where the structured investment program is intended to sort of cap out. So we feel very comfortable with where we sit.

As I mentioned, it's still a little bit unclear as to ultimately where that shakes out. But whether we get repaid and keep a position in the deal or ultimately own it, I think that either outcome would be a fantastic one for Kimco. You are correct that the coupon is clearly high. It is intended to be relatively short term, while I think the borrowers consider what the next step is there, whether it be a refinance, a sale or otherwise. So there are some moving pieces there, but we're in a really strong position.

[Operator]

And the next question comes from Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, analyst]

I'm still Alexander Goldfarb. Alexandra -- I don't know, I guess I'm a new-aged fluid person. So a quick question for you. On the small shop because that's where a lot of the juice is coming from. Not sure if you've quantified, but maybe you could. The impact to FFO or NOI margin, as the small shop leases up becomes occupied, paying rents, you mentioned 400 basis points lower small shop occupancy in the RPT versus Kimco. And obviously, in the release, you highlighted the record lease rate in the Kimco portfolio, 91.7%. Can you just give some framework around what the earnings benefit as the small shop takes effect maybe every 100 bps of small shop occupancy versus the larger boxes? Because I got to believe that the earnings impact is superior just given the better economics.

[David Jamieson, executive]

Yes. No, great question, Alex. I'll be doing the math quickly. So you have about 25 million square feet of small shop space. If you take 100 basis points of that, it's about 250,000. Average rents for our small shops are around $32 a foot. So multiply to 2, you get around $8 million of ABR coming from that. And that excludes obviously any recovery benefit you would get from that as well.

So if you take that, quantify into the FFO gain, there's obviously significant upside. And when you look at -- so how we've been trending, obviously, on the small shop back activity for Kimco and what we anticipate -- what we could potentially do on the RPT side? We see real benefits going forward.

On the snow pipeline, that $63 million. On the non-anchor side, it represents about 47% of that total $63 million. So you're starting to see a real meaningful contribution from the small shop growth.

[Conor Flynn, executive]

Small shops also typically take less time and less capital to come online. So really, it's a focus. Clearly, we understand the upside, and we continue to ride the momentum.

[Operator]

And the next question comes from Floris Van Dijkum with Compass Point.

[Floris Gerbrand van Dijkum, analyst]

Following up on the small shop concept. Obviously, it's a huge earnings driver and upside potential. I note you guys are around 49% of ABR from shop space today. Where do you think, once the portfolio stabilizes, that percentage of ABR from shop space goes to or can go to?

[Conor Flynn, executive]

It's a good question, Floris. I mean I think we are laser focused on driving that small shop occupancy. Obviously, we're in uncharted territories because if you think about the drag that the RBT portfolio had on Kimco's small shop occupancy, we're setting records this quarter.

So we have the ability to continue to push. We don't see any hurdles in front of us that should sort of derail the momentum that we're seeing, and trying to generate as much growth from the small shop side is really the focus. The occupancy on the anchors is over 98%. There's still a lot of demand there.

As I mentioned earlier, a lot of leases that are in bankruptcy auctions are being acquired because they can't find good quality retail space. So they're acquiring it out of the bankruptcy process. But I think when you look at the small shop occupancy side, there's really -- we're not sure how high we can push it, but we're going to push it as hard as we can to all-time highs.

[Operator]

The next question comes from Jeff Spector with Bank of America.

[Jeffrey Spector, analyst]

Conor, just based on your opening remarks around the economy mixed signals of the consumer, what is the -- what are the marching orders to the leasing team at this point? Is it maybe changing your leasing strategy or staying aggressive?

[Conor Flynn, executive]

Thanks, Jeff. It's pretty consistent. I think when you've got the advantage that we have in terms of advantages of scale, we try and be proactive and work with our partners, our retailers to try and make sure that we are the first call and looking out 2, 3, 5 years even for their growth strategy.

So the benefit of Kimco's portfolio is a lot of our retailers are regional, and some of them have yet to even consider some of our target areas where we have phenomenal portfolio. So when you look at some of the retailers that have done quite well recently, like Sprouts Farmers Market, for example, they have yet to even really penetrate some of our markets.

And the same goes for some other grocers. We did 5 grocery-anchored leases this quarter, 5, and we feel like that demand is still accelerating. And when we look at our portfolio, a lot of our strategy is to utilize the platform and the team to go and unlock more value by adding groceries to it.

So there's a lot of momentum there. Clearly, the focus is on executing. We've got a lot of tools at our disposal. We just designed a brand new interactive site plan that we're really excited about, that actually links to all of our data. So it's really sort of a unique tool that allows our field team to be able to utilize it in the field with the retailers to be able to generate more leasing opportunities.

So a lot of things clicking on all cylinders right now. And obviously, you can tell we're super excited to continue the momentum.

[Operator]

And the next question comes from Ronald Kamdem with Morgan Stanley.

[Ronald Kamdem, analyst]

Just 2 quick ones, one on the RPT. Just looking at the slide in the deck, which was really helpful. I think we talked about the 420 basis points small shop occupancy, but can you hit on just the Mary Brickell Village redevelopment, just the timing? I know it's farther out, but how is that sort of progressing? How are you sort of thinking about executing on that, would be question one?

And then the question 2 is just on the bread crumbs on same store NOI. It seems like you're going to continue to gain occupancy from here. The portfolio is pretty full. With sort of similar bad debt assumptions as this year as last year, is there any reason in what you can't do another sort of 3% sort of long term going forward? What are the puts and takes there?

[David Jamieson, executive]

Yes. On the Mary Brickell side, you're right. I mean there is a tremendous amount of opportunity there. Right now, near term, the reinvention of the merchandising plan and the re-leasing opportunities are significant. You're seeing rents go from the 40s up into the triple digits.

And so our focus right now is near-term opportunities to re-merchandise, reposition hefty portions of that asset, and that will be the focus in the near term. As it relates to your other question...

[Glenn Cohen, executive]

Yes. Yes. As it relates to the same-site, again, we are very comfortable with the guidance range that we have. So you're 2.75% to 3.25%.

Looking at longer range, obviously, our intent is to continue to drive same-site growth as much as we can. But again, it's an annual number. Quarter-by-quarter makes it -- it's a little tricky quarter-by-quarter every 90 days, but the team is incredibly focused on generating leases quickly and getting those tenants open as fast as we can. We've dedicated a lot of resource to helping our tenants get those stores open and getting the rent commencement as quick as possible. So that's the driving force today.

[Conor Flynn, executive]

The only other thing I would add on Mary Brickell Village is you've probably seen a lot of the news headlines of all the development going up around Mary Brickell Village and the demand there from the retailers continues to accelerate. Market rents continue to accelerate. And Mary Brickell Village was obviously part of the RPT portfolio, and that price per square foot for the whole portfolio was $165 a foot, which included Mary Brickell Village.

[Operator]

The next question comes from Caitlin Burrows with Goldman Sachs.

[Caitlin Burrows, analyst]

Maybe just a little bit more on the leasing side. It feels like the environment has been pretty good for a while. So what are some of the key stats you guys use to gauge leasing interest and activity, if you like, the size of the baseline number of lease proposals, et cetera? And how are they trending? And has there been any change to who the active tenants are?

[David Jamieson, executive]

Yes. I mean, first, on the [indiscernible] retention, obviously, our retention rates right now are about 90%, which are exceeding our historic highs over the last several years. So the demand for existing tenants to remain in place and want to renew and continue to operate their business with us, it's been really, really encouraging.

On the new lease side, the acceleration of both the anchor and the small shop activity, again, as Conor mentioned several times before, hitting our all-time highs. I think that's your best indicator of showing the demand side. So you're retaining and then you're growing.

And then in terms of how you're looking forward in terms of new retailers that are looking to expand into the portfolio? You're seeing a lot of ethnic grocers being very proactive in the sector right now, which is great. And they're looking not only 1 to 2 years, but really 3-plus years out now and planning for well into the future because, as we mentioned earlier, there is no new development supply on the horizon in any meaningful way to create new inventory. So it's all about second-generation space. All of these retailers need to hit their mark and hit their own growth strategies. So they want to be as proactive with us as we are with them.

And you're seeing that, too, in terms of obviously deal terms and the flexibility of the space in which they target. Prototypes were something coveted in the past, and now they've become much more flexible in how they utilize the space. It can either extend or contract the fit into the opportunity that's presented in front of them. And so it's really -- developed really strong partnerships with all of our retailers and results in all of us having to get creative to help achieve both collectibles.

[Operator]

And the next question comes from Linda Tsai with Jefferies.

[Linda Yu Tsai, analyst]

A two-part question. You mentioned SNO getting open faster. Is there any way to quantify how much more quickly this is happening? And do you think you have the ability to move it even faster?

[David Jamieson, executive]

Sure. In the first part of this year, we anticipated our SNO contribution about $25 million to $30 million. We're now at the upper end of that range, so $30-plus million for the year, with, as Glenn mentioned in his prepared remarks, about $8 million coming online for the second half of this year.

And then when you look ahead in terms of what's going to be contributed as it relates to that $63 million between '24 and '25, about $30-plus million will start to come online in '24 and then another $20-plus million will come online in 2025. So that's almost 85%, 90% of that SNO pipeline starting to flow over the next 12 months.

How we're doing this is just exhaustive work. It's simply put that the tenant coordination, the construction team, leasing property management are all exhausting all of their efforts to help solve problems in the field challenges and [indiscernible] opportunities to open them sooner, that's the only way you can get it.

[Linda Yu Tsai, analyst]

And then just a follow-up on the transaction environment. How much has cap rates compressed since the beginning of the year? And then what's the level of compression you might expect over the next 12 months?

[Ross Cooper, executive]

Yes. I think in the first half of the year, it's been fairly consistent. As we talked about, transaction volumes have been lower this year compared to 2023. But the deals that are getting done continue to be at fairly aggressive rates.

So we haven't seen much movement or comparable product in terms of the cap rates that they're trading at. That being said, there, as I mentioned, is a fair amount of optimism that the back half of the year and into 2025, with the amount of capital that's been on the sidelines that's ready to invest and with the expectation that the rate environment is stable, if not moving lower, the anticipation is that there's going to be more capital, which inherently should push cap rates down gradually over time.

[Operator]

And the next question comes from Wes Golladay with Baird.

[Wesley Golladay, analyst]

It looks like just under 30% of the anchor leases expiring through 2025 have no option. It looks like their older leases, about a 40% mark-to-market. How should we think about retention here? Would you look to force move-outs to get more relevant tenants in?

[David Jamieson, executive]

Yes, that's a great question. So right now, you're right, it's about 52 leases that are rolled out with no options in '25. We've resolved or in the process of resolving about half of those already. So it's a combination of identifying new opportunities to backfill space and higher rents, retaining the existing tenants in place at a market rent.

And what we do is we look, at today's environment, the merchandising mix and what is best for the asset long term to drive shareholder value and to best support the needs of the shopping center itself. So it's a combination of all those activities. But again, we're already looking ahead into '25 and feel very good about the outlook.

[Operator]

And the next question comes from Paulina Rojas with Green Street Capital.

[Paulina Rojas Schmidt, analyst]

As you described, the sector's background is clearly very solid. Based on your experience, what level of year-over-year rent growth should be solid fundamentals translate into, if you think about the next 12 to 24 months? And also, if you could comment on how you're negotiating power evolving with anchors? It seems to be -- to me that most of the rent growth is coming from the shop side of the business.

[Conor Flynn, executive]

Yes. Good question, Paulina. And I think what you've seen is the trajectory of the same-site NOI growth continues to improve. When you look at the components of that, as you know, a lot of it has to do with retention because we're so highly occupied.

So as retention rates remain high and we're getting the incremental growth from new leasing, you're seeing 3% plus over the past 3 quarters that we've been able to produce. So when you look out, it's hard to extract exactly what the new glide path looks like.

Historically, our sector has produced around a 2% same-site NOI growth profile. Obviously, we're trending towards higher than that. But we like the -- just executing on where we are today and continuing to look at the opportunities set going forward. Clearly, we've talked a lot today about the small shop opportunity we have, and we think that will continue to manifest in our numbers. And then on the anchor side?

[David Jamieson, executive]

Yes, on the anchor side, the conversation, we sort of break it into 3 broad categories. Obviously, on the terms, you mentioned growth. We're continuing to push rent escalations, both in the primary and the option periods -- period, ensuring that we retain as much control as we can into the future.

When we look at the space, I mentioned this before, growth also comes from the accommodation of being more flexible with the space in which they're willing to occupy. So if you're able to show some flexibility and modify that prototype to get them in place, you then also get the halo effect benefit from the balance of the center with tenant open and operating.

And then finally, with timing, too, as I mentioned, we're building a very robust pipeline into the future. And so we're working with our retail partners and our anchors to look well out in front 12, 24, 36 months and beyond to help achieve both collective gold. So we're seeing the conversation evolved pretty dramatically in several broad categories.

[Operator]

the next question comes from Haendel St. Juste with Mizuho.

[Haendel St. Juste, analyst]

So I guess first question I have, maybe for you Ross. I guess I was surprised a bit in the reduction in the dispositions here. I know it's not a sizable amount, but you're not in a position of needing to sell assets, but we've heard scarcity premiums increased buyer interest.

So I guess can you add a bit more color on why you're pulling back here? You're not getting the demand or pricing you want? Are the assets perhaps better than you appreciated? Are you preferring to keep the cash flow? What are we not appreciating or what's changed since you first contemplated the sale of a greater portion of these former RPT assets?

[Ross Cooper, executive]

Sure. It's just looking at the outlook of where we are right now, August 1. We, as I mentioned, completed the vast majority of the dispositions that we had planned. We were really excited with the execution on the RPT dispose.

And when we look at the performance of the portfolio that we have right now, there really isn't a need to further dispose. We have the availability of our full credit facility. So liquidity is in the best shape that it's been in, so it's not a capital need per se.

We do have several assets that are within our joint ventures that are currently in the market. We're not certain if a few of those or any of those may or may not transact. But if they do, there will certainly be a significantly lower cap rates than where we've been, which is sort of what prompted the decision to drop the upper end of the cap rate range on the disposition.

So it really is just a combination of the entirety of our capital plan and our outlook and the performance of our portfolio, and we feel really good about where we are. And we'll revisit where things shake out when we go through the budgets for 2025. But at least through the end of '24, that's where we feel most comfortable.

[Operator]

The next question comes from Mike Mueller with JPMorgan.

[Michael Mueller, analyst]

Just a quick one on bad debt. So for the 86 basis points that you had in the first quarter or the first half of the year, can you talk a little bit about the makeup of that? How concentrated or diversed was the types of tenants? Anything notable there?

[Kathleen Thayer, executive]

Yes. Thanks so much for the question. So you're right, the credit loss for the year-to-date is at 86 basis points. There's really nothing -- no current tenants that are having concern inside that number that would make us go outside of our projected credit loss guidance of 75 to 100 basis points.

For the quarter, there's definitely an impact of timing in there. So we bill a majority of our CAM bills as well as some real estate tax bills during the second quarter. And as such, any tenants at a cash basis, you have to put up a 100% reserve right away. So it's definitely a timing impact.

But overall, we're not seeing anything in the AR in terms of creep or any acceleration on year-over-year our levels are pretty stable and flat. So we're very comfortable with our 75 to 100 basis points that we have in guidance.

[Operator]

And the final question comes from Michael Gorman with BTIG.

[Michael Gorman, analyst]

[indiscernible] ratio that you're seeing...

[Ross Cooper, executive]

Mike, you cut off. Can you just start again?

[Michael Gorman, analyst]

Sorry if I missed it, but can you just talk for a minute about the occupancy cost ratio that you're seeing as you're out there doing the new leasing? And I guess, specifically, the reason I'm thinking about this is obviously from the traditional real estate supply-demand perspective, there's a lot of strength there.

I'm just wondering how much continued strength and rent growth the tenant environment can support here? And has there been any shift in the tenant thought process in terms of how much of their cost structure can go towards rent and towards real estate?

[David Jamieson, executive]

Yes, occupancy cost ratio is very sector to sector, retail and retailer because it's a culmination of really how they run their business and the margins associated with the products they sell. But it's always a continued dialogue between what is the all-in cost for our leases, both on the base rent and the CAM associated with that rent.

And it's a negotiating point. Obviously, when you have multiple bidders at the table, you have that opportunity to push those rents higher. But it's something that we're mindful of, they're mindful of. But right now, what we're seeing, we're still continuing to see very healthy strong rent growth from where we were historically and are encouraged by their action.

[Conor Flynn, executive]

Yes, Mike, don't forget that now most of brick-and-mortar retail is used as a distribution and fulfillment point. So the occupancy cost of the old days of just the 4 walls has changed dramatically. And I think we're just -- honestly, I think we're just scratching the surface in terms of value proposition is of the store and the true occupancy cost because the margin gets enhanced. If you can run the e-commerce sale through the store, and most retailers have that as their business model, which continue to show why they're putting a lot of capital towards expansion goals today.

[David Jamieson, executive]

Yes, it's actually a great point because they're now looking at it like trade area in its totality and how much market share they're grabbing out of the entire trade area. So the way in which they're viewing the world is very different than just days of old or it was just 4-wall EBITDA growth. But instead what is the larger catchment area that this store sell.

[Operator]

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

[David Bujnicki, executive]

Just like to thank everybody that participated on our call today. We hope you enjoy the rest of your day as well as the rest of the summer. So thanks so much.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.