Greetings, and welcome to the Kimco Realty Corporation's second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Bujnicki, Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bujnicki.
You may begin your presentation at this time.
Good morning, and thank you for joining Kimco's quarterly earnings call. The Kimco management team participating on the call today include Conor Flynn, Kimco's CEO, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFO, Dave Jamieson, Kimco's Chief Operating Officer, as well as other members of our executive team that are also available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward-looking, and it is important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to the company's SEC filings that address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results.
Reconciliations of these non-GAAP financial measures can be found in the investor relations area of our website. Also, in the event our call were 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 investor relations website. With that, I'll turn the call over to Conor.
Good morning, and thanks for joining us. I will lead off today's call with an update on our strategic initiatives and a review of our Q2 leasing highlights. Ross will cover the transaction market and our recent activity, and Glenn will follow with our financial metrics and our updated guidance. We had another solid quarter thanks to the efforts of our outstanding team, the high-quality nature of our portfolio, and our disciplined strategy. The initiatives we put in place more than five years ago to upgrade the quality of our portfolio, streamline our organization, and enhance our platform continue to drive exceptional results. Our investments in leasing and property management, human capital, ESG, community outreach, technology, data analytics, and entitlements have generated solid positive returns and created value for all of our stakeholders.
We remain focused on executing our plan and putting up numbers that help to further differentiate Kimco and our approach. It is with cautious optimism that we highlight our considerable accomplishments this past quarter while remaining cognizant of the macro issues impacting our country, our economy, our retailers, and our consumers. While our strong second quarter numbers are reflective, our leasing team continues to report that demand for space across our portfolio remains robust and should continue to grow. For the right space and the right location, pricing power remains strong, even in this period of economic uncertainty. One of the key drivers is our focus on last mile locations, which are seeing positive traffic patterns at 101.3% relative to the same period last year.
The Kimco consumer lives in the first-ring suburb of the top major metro markets where employment and spending power remains strong. While we can't ignore the impact of inflation, the consumer remains resilient for now, and more importantly, our portfolio focus on essential goods and services puts us in a sound position to better withstand the ever-changing environment. On the leasing front, pro rata occupancy finished up 40 basis points, reaching 95.1% due to positive net absorption. Year-over-year, pro rata occupancy is up 120 basis points. Anchor occupancy is up 30 basis points quarter-over-quarter to 97.6% and up 70 basis points year-over-year. Small shop occupancy is up 80 basis points quarter-over-quarter to 89.2% and up 370 basis points year-over-year.
That is our largest year-over-year increase in small shop occupancy in over ten years. During the quarter, we signed 150 new leases totaling 711,000 sq ft. Our new lease spread was 16.6%, with notable positive drivers coming from medical, off-price, beauty, and salon services. We completed the quarter with 348 renewals and options totaling 1.6 million sq ft. The second quarter renewals and options spread was 5.6%, with options ending at 6.4% and renewals at 5%. Total second quarter deal volume was 498 deals totaling 2.3 million sq ft, with a combined leasing spread of 7.1%.
We executed 2 new grocery leases this quarter, which helped us cross the milestone of 80% of annual base rent coming from grocery anchored properties ahead of schedule. We continue on the path to hit our goal of 85% by 2025. The benefits of our portfolio transformation to a dominant grocery anchored portfolio in the top metro markets are numerous. Most notably, perhaps is the robust small shop leasing activity driven by the halo effect of our strong grocery anchors, which helps drive cross-shopping and more leasing demand and pricing power. An important takeaway this quarter is that our portfolio retention rates continue to shine. Our portfolio GLA retention rate during the second quarter was 93%, with anchors and small shops both 10% above their respective five-year average retention rate.
The high retention rate is why we only had 91 total vacates for 223,000 sq ft this quarter, making it the lowest GLA vacated during a quarter over the past 10 years. Further, we're maintaining pricing power, as 96% of all renewals and options were at a positive rent spread. We believe these high retention rates are directly related to our efforts to optimize our last mile locations for our retailers and further highlight the value proposition of our portfolio. We also believe that if we continue to make the last mile store more valuable, over the long term, our retention rates will continue to improve. Occupancy will rise, and tenant churn and CapEx will decrease, all of which will result in a higher long-term growth rate for the portfolio. In closing, our strategy remains straightforward.
Focus on leasing, work to expedite our tenant openings, entitle our assets for future density opportunities, maintain a strong balance sheet and liquidity position, and be patient, identifying investment opportunities in which Kimco is uniquely positioned to add value. We believe these initiatives will lead us to sector outperformance and reinforce the Kimco differentiator that drives total shareholder return. Ross?
Good morning, and I hope everyone is having an enjoyable summer. As we always say in this business, the only constant is change, and the second quarter has showcased the unpredictability of the macroeconomy and how quickly things can pivot. To that point, the mantra we continue to follow emphasizes the importance of maintaining a nimble and opportunistic strategy and a balance sheet that supports both organic and external growth at any point in the cycle. The quality of our portfolio, balance sheet, and liquidity position puts us in a prime spot to be opportunistic. On previous earnings calls, we identified a pipeline of activity in all three elements of our transaction strategy, which are the buying out of JV partners, providing mezzanine and preferred equity financing via our structured investments program, as well as the outright third-party acquisition of high-quality shopping centers that offer further opportunities for value creation.
In the second quarter, we closed on several transactions in support of this strategy. In terms of partnership buyouts, we acquired an additional 3.6% interest in our longest-standing institutional joint venture, the Kier Partnership, thereby increasing our ownership percentage of that fund to 52.1%. The net payment for this was approximately $55 million. The assets consist of a geographically diverse portfolio of high-quality, long-term hold properties for Kimco. On the structured investment side, during the quarter, we closed three mezzanine loans for approximately $50 million, providing double-digit returns. The assets included a Safeway-anchored regional center in Fairfax, Virginia, a mixed use, pedestrian-friendly power center in a high-income Super ZIP part of Dallas, and a unique, irreplaceable center along the 105 freeway in Los Angeles in a dense infill location with a culturally immersive experience anchored by a supermarket, pharmacy, a mercado, and others.
All of these investments have a right of first offer or right of first refusal in the event of a sale, putting us in a prime position to potentially own these assets in the future. Subsequent to quarter end, we acquired two premier grocery-anchored centers from Cedar Realty as part of their portfolio transaction with DRA and KPR Centers. The properties, which we view as the two best assets in the Cedar portfolio, are located in Massapequa, New York, and Philadelphia, PA. Both assets have tremendous upside potential that we look forward to unlocking. Separately, we also made a $22 million participating loan on three grocery-anchored centers in Pennsylvania as part of our structured investment program. This is a prime example of our ability to utilize our various investment components to opportunistically deploy capital with a unique deal structure.
Also post-quarter end, we were able to negotiate a $21.2 million buyout of a fee title position on a former Weingarten site in Rockville, Maryland, where we previously had a leasehold position with only 37 years remaining. The transaction enables us to collapse the leasehold and create substantial net asset value on the property by converting our ownership to a fee position. On the disposition front, we sold approximately $100 million at Kimco's share of non-core assets where the value had been maximized. This included several joint venture assets which we elected to sell to a third party rather than meet the pricing. We will continue this strategy where appropriate with all of our joint venture partners and make a disciplined decision whether to sell the asset or negotiate a buyout of our partner's interests.
While the market has quickly become a bit choppy on the transaction side, with the bid ask between buyers and sellers starting to widen and the lenders becoming more conservative as interest rates and inflation rises, we continue to see a healthy demand for core grocery anchored product that provides everyday goods and services. Pricing remains relatively sticky for our property type, especially when compared to other asset classes that were either previously priced to perfection or contain greater risk in today's environment. We believe with our multiple verticals, we can be opportunistic when dislocation or softening occurs. With that, I will gladly pass it off to Glenn to provide the financials for the quarter.
Thanks, Ross, and good morning. We are pleased to report another strong quarter highlighted by brisk leasing volume, higher occupancy, positive same-site NOI growth, and a healthy increase in leasing spreads. These operational achievements led to double-digit FFO per share growth. Nareit FFO was $246.4 million, or $0.40 per diluted share for the second quarter 2022. This compares favorably to second quarter 2021 Nareit FFO of $148.8 million, or $0.34 per diluted share, which included a $3.2 million charge, or $0.01 per diluted share in connection with the Weingarten merger. FFO per diluted share grew by 17.6% compared to a year ago, and 14.3% if you exclude the merger related costs.
The strong increase in FFO was primarily driven by higher consolidated NOI of $97.1 million, including $87.3 million from the Weingarten acquisition, $4.7 million from other property acquisitions, and $6.6 million from core portfolio growth. FFO contribution from our joint ventures was $9.3 million higher than the same quarter last year, comprised of $8.2 million from the newly acquired Weingarten JVs and improved credit loss from our other joint ventures. This growth was offset by higher interest expense of $9.7 million and G&A of $3.2 million, primarily due to the 150-property Weingarten acquisition. Our operating portfolio delivered positive same-site NOI growth of 3.4%, which included a 30 basis point benefit from our redevelopment projects.
This is a strong result as we were comping against a 16.7% level last year. An additional encouraging sign from the same-site NOI growth was the contribution from the minimum rent component of 470 basis points and lower abatements of 70 basis points. This was offset by the change in credit loss due to the significant level of credit loss reversals recorded in the prior year quarter. Certainly, our same-site NOI for the next two quarters will also be challenging given our prior year comps of 12.1% for the third quarter and 12.9% for the fourth quarter, which resulted from large reversals in credit loss in 2021.
Furthermore, our outlook for the remainder of 2022 doesn't anticipate additional reversals of bad debt or collections from cash basis tenants for prior periods. Notwithstanding, we expect same-site NOI growth to be positive for the full year. In terms of our ADR from cash basis tenants, it is now down to pre-pandemic level of 4.3%, in which we collected over 76% that was due during the second quarter of 2022. Turning to the balance sheet, our look-through net debt to EBITDA, which includes our pro rata share of joint venture debt and NOI and our perpetual preferred issuances, stands at 6.4x, which remains the best level achieved since we began disclosing this metric over a decade ago.
This level does not include any potential benefit from monetizing our Albertsons investment, which has a current market value of over $1 billion. As mentioned earlier, our liquidity position remains strong, with $2.3 billion of immediate availability, comprised of $300 million in cash and our $2 billion revolving credit facility, as well as our Albertsons investment. With respect to capital activity, during the second quarter 2022, we judiciously utilized our ATM program to issue 450,000 shares of common stock at a weighted average price per share of $25.30, raising $11.3 million. In addition, we repurchased $36.1 million of our three and 1/8 notes due in June 2023, and $11 million of our three and 3/8 notes due in October 2022.
We also repurchased 3.6 million of our outstanding preferred stock. Lastly, we repaid $30 million of consolidated mortgage debt during the quarter and have a $290 million bond as our only remaining consolidated debt maturity for 2022. Also worth noting, over 99% of our outstanding consolidated debt is at a fixed rate, having a weighted average maturity of nearly nine years. Based on the strong results for the first half of 2022 and our expectations for the remainder of the year, we are again increasing our 2022 Nareit FFO per share guidance range to $1.54-$1.57 from the previous range of $1.50-$1.53.
The new range is based on the following assumptions: positive same-site NOI growth for the full year, a range of $1 million-$6 million of credit loss for the remainder of the year. No additional charges associated with debt prepayment or the redemption of our callable preferred issuances that are outstanding, and no monetization of our Albertsons investment. Separately, we want to call out something important with respect to interest expense for your 2023 models. As a reminder, the reduction in the fair market value adjustment associated with the Weingarten debt we assumed will result in approximately $13 million more of interest expense over that in 2022. To better illustrate this, we expanded our disclosure on the consolidated debt detail page in our supplemental packet. Moving on to our dividend.
Based on our strong second quarter results and favorable outlook, our board of directors has again raised the quarterly cash dividend for the third consecutive quarter to a new level of $0.22 per common share. This represents an increase of 10% from the previous level of $0.20 per common share and 29.4% over the $0.17 per common share paid a year ago. We continue to maintain a dividend distribution level, which is in line with estimated taxable income from recurring operations, and expect to generate over $200 million of free cash flow after the payment of both dividends and leasing CapEx. We truly appreciate and thank the entire Kimco team for their outstanding efforts and drive to create shareholder value. Now we are ready to take your questions.
At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, please limit yourself to one question only and rejoin the queue if you would like to ask a follow-up. Thank you. One moment while we pull for questions. Our first question comes from the line of Craig Schmidt with Bank of America. You may proceed with your question.
Thank you. I'm just wondering, do you know the maintenance of the strong new demand and pricing power, is this strength from your grocery/essential base shopping centers, or is it just a reflection of a positive run rate on leasing completed and put to bed for 2022?
Yeah, it's a great question, Craig. Appreciate it. Yeah, I mean, I think that the quality of our real estate, the grocery-anchored essential shopping centers, last mile, closest to the customer is really, you know, at the forefront. You know, that's your foundation and what you build upon. Then in terms of the demand side with the retail base, despite obviously the headwinds that we're all discussing in the current environment, there's still a need long term to position your real estate portfolio in the best centers possible. I think what you're seeing is a lot of retailers observing that opportunity now and wanting to take advantage of it and sort of fight through the current headwinds here.
I think we continue to see that the strong demand, you know, not only out of Q2, but as we progress through the balance of the year. And then it's also coupled with, obviously, the lack of any new supply in terms of retail construction. I believe year-over-year, this last quarter, it's down about 56%. Only just over three million sq ft of new retail construction was completed. When you have that, you have this COVID inventory and high-quality real estate, it all sort of comes together and puts us in a really good position.
Our next question comes from the line of Adam Kramer with Morgan Stanley. You may proceed with your question.
Hey, guys. Thanks for the question, and appreciate all kind of the commentary and especially, I think, Conor, some of your earlier comments, you know, I think you kind of outlined, you know, clearly right there's some cracks showing in the macro, and I think, you know, you're maybe a little bit more open than others about kind of, you know, recognizing that in your comments. I think I particularly, hopefully, I'm not putting words in your mouth, but I think you kind of called out cautious optimism, you know, regarding kind of the quarter and how you see things going forward and w ondering maybe what some of those puts and takes are, that kind of caused you to use, that phrasing of cautious optimism?
Sure. Happy to expand on that. I think where we are today is you're seeing our product really resonate with the consumer. You know, they're prioritizing value and convenience, and I think it's really resonating with sort of the new age of retail, with how people are shopping and the convenience and value proposition that we can provide to our customer. I think where we are having cautious optimism is obviously there's a lot of stress on the consumer right now with the inflationary environment that we're dealing with. When we look at the Kimco consumer, which again, is more affluent than the traditional sort of U.S. average shopper, they're holding up quite well. You know, where our portfolio is positioned in that first ring suburb of the major metro markets, employment is strong.
You know, the wage increases that we're seeing are resilient, and the shoppers are continuing to gravitate towards our product. I think we're all wondering what the future is going to hold. Everyone has a different crystal ball. We feel we're in a position to be an opportunist if cracks emerge, where we can obviously pounce on opportunities where we can create a lot of value. But to date, what we've seen is a continued traffic towards our centers, continued demand for our limited vacancies that are remaining. Pricing power remains squarely in the landlord's camp. We're cautiously optimism that it's going to continue as we see the pipeline continuing to expand with the right retailers that are credit worthy, that have integrated e-commerce, and are using their stores as last mile distribution points.
Our next question comes from the line of Greg McGinniss with Scotiabank. You may proceed with your question.
Hey, good morning. Conor, I just want to talk quickly on the decision to extend the lockup on the Albertsons shares. Just curious what the kind of drivers were there.
Sure. When you're in a consortium that owns a sizable amount of the stock, you know, I think it's in best interest for our shareholders to really see it through to make sure that an organized execution. Really creates the most value for our shareholders longer term. That's why we considered the options on the table and felt compelled to go along with the consortium to see this through. It's been a wonderful investment for our shareholders. We've made a tremendous amount of money on the initial investment and feel like, you know, there's obviously this final act that we wanna see through. We do believe that the management of Albertsons is doing everything possible to maximize value. We feel like it was important to see that through and extend the lockup period with the consortium to give the Albertsons management every opportunity to execute on their strategic alternatives review.
Our next question comes from the line of Craig Mailman with Citi. You may proceed with your question.
Hey, guys. I fully acknowledge that the balance sheet is in strong position with good liquidity, but, you know, there was a news story out this week about a $400 million portfolio you guys are buying. You were active in the quarter. I'm just kinda curious on two things. One, as you guys are underwriting and where the equity value is today, kinda what are the return hurdles you're looking for to be acquisitive here? Number two, just, you know, what's the plan on potentially financing ramping acquisition activity?
Yeah, Craig, I'm happy to address that. You know, as I've mentioned in the past, we do look at a variety of metrics when we're evaluating a potential investment. Cost of capital is something that's top of mind for everybody in the organization. We look at it every single day. When we think about a cap rate in this environment, you know, it really is a spot check on day one. Our focus is on creating value and enhancing growth for the company and doing it in an accretive way.
In terms of an acquisition, if it starts at a relatively low cap rate, we need to ensure that there's a tremendous amount of near-term growth that's achievable, and we need to find other avenues to enhance the returns on our investments, which is where sort of our structured investments program comes in, where we're able to put out capital at very attractive returns day one. When you blend the return on our three sort of pillars of our investment strategy between buying out our partners accretively, acquiring selectively core acquisitions, and then layering on our structured investments, we get to a point where we feel very confident in the returns that we're able to achieve and the growth that we're gonna get in the short, medium, and long term.
In terms of the funding, you know, that's where we really feel that we're in a unique and really strong position. As Glenn mentioned, we have over $200 million of free cash flow after dividend and leasing CapEx. We have cash on the balance sheet. We have a moderate amount of dispositions that we recycle into new acquisition activity. Of course, ultimately, we'll have our Albertsons monetization, which we'll be able to put to work there. We do believe that we have a fair amount of ways to fund these deals in an accretive manner.
Our next question comes from the line of Samir Khanal with Evercore ISI. You may proceed with your question.
Hey, good morning, everyone. Hey, Glenn, just wanted to dig a little bit deeper in the guidance here. When you take the first half FFO, you're getting close to $0.79, which implies $1.58 for the year. Your guide is $1.54-$1.57. Just wanna make sure, is there something in the second half we should be aware of? I guess Steve and I were trying to figure this out this morning, and maybe some color you can provide.
No, I mean, I think if you look at the second quarter, you know, the $0.40, there's about $0.01 of, I'll call things that are, you know, more or less like one-time. You know, there's some LTAs in there. There was a little bit of a settlement on one of our joint ventures, and we did have about $4 million of benefit from credit loss-related items, you know, reversals of straight-line reserves as well as credit loss income. But we're not anticipating that level of credit loss income going forward in the second half of the year. As I mentioned, we do have a range of $1 million-$6 million of credit loss that's still in the numbers.
You know, that's kinda where we get to that upper end of the range, which would imply, you know, roughly a $0.39 quarter for the third and fourth quarters. We have those components baked into it. You know, again, we are cautiously optimistic, as Conor said, but, you know, we are watching pretty closely what's happening in the economy. We're, you know, watching interest rates, and we think that the guidance that we put out. I'm happy that we've increased it to the level that we have, but we wanna, you know, keep it at the level that we feel is achievable.
Our next question comes from the line of Juan Sanabria with BMO Capital Markets. You may proceed with your question.
Hi, good morning. I just wanted to touch on the opportunism that you maybe see or, and/or are positioned for given the balance sheet strength and liquidity. I mean, is there sizable opportunities that maybe you're seeing now, or is there maybe some potential distress that you see coming up that you think will eventually open up opportunities? Because it sounds like maybe there's something bigger in the works. I'm just trying to get a sense of how near-term the potential opportunity set may be.
Sure. I would say we have not seen the distress as of yet, but we're absolutely prepared for it. Now we'll continue to be extremely disciplined with the investments that we make, based upon our liquidity position, our balance sheet. You know, we think that we're in a wonderful position to be opportunistic once that presents itself. We saw that in the early stages of the pandemic, and then we had a very quick recovery. To the extent that there is some dislocation that presents itself from some of the challenges in the macroeconomic conditions today, we'll be ready to move on that very quickly and aggressively, but we're gonna stay very disciplined when we do it.
I think we've seen a little bit more opportunity too. Would you say, Ross, in the structured investments versus the core acquisitions as we're being patient looking for those cracks, and we're seeing a lot of opportunity, I think, in the structured investment side with a little bit of higher return day one.
Yeah. One of the nice things about the structured investments is as you could see or we put out in the release, there were three structured investments that we closed on in the third quarter, with a fourth one that closed just subsequent to quarter end. While it's not a tremendous amount of capital outlay, I think combined it was just about $72 million for those four deals, it does provide a potential pipeline for a much larger transaction if that opportunity presents itself. It's a relatively modest investment today with a very attractive return that could lead to a much bigger opportunity down the road.
Our next question comes from the line of Alex Goldfarb with Piper Sandler. You may proceed with your question.
Good morning. Morning out there on the island. Just a question on the consumer. As you look across your tenants, you know, are they seeing any drop off? Basically what I'm getting at is if you take the 80/20 rule where 80% of the business is 20% of the people, are they seeing some of that, some of the sort of non-core shoppers or restaurant owners or whatever sort of fall out and their businesses being more sustained by their core shoppers or your tenants not really seeing a change in their overall shopper base?
I'm just still trying to understand with, you know, fuel costs and rising interest rates and all that stuff, if there's been any change at all in the shopper dynamic or if it's really that some of the people have dialed back, but it's that core shopper that just remains adamant about continuing to go to your centers.
Yeah. It's a good question, Goldfarb. Making me think a little bit here. I'm gonna use a little bit of fact and then a little bit of anecdotal, my opinion and assumption. Traffic-wise, you know, when we compare our numbers to 2021 and where it is, it's up over 100%. When you compare it back to 2019 levels, it's more or less in line with where it was then, pre-pandemic. You have the volume of activity there on site, which is good. You look at sort of the dynamic or the composition of the customer and the consumer. I think what we have been seeing is still this desire to reengage in society and the communities, services, restaurants, entertainment.
Obviously the near-term success that we've seen with theaters, people wanting to go out and spend some discretionary dollars to entertain themselves and their friends, has been a positive sign that we've seen extend through the summer. I think that probably broadens your base beyond just, you know, your core recurring shopper. I do think you're seeing some value trading occurring obviously with, you know, price inflation being what it is. Some of those customers have continued to buy, but they've maybe focused more on value purchasing, which, you know, in the great recession is where off-price really found its footing and acceleration. Maybe they're making slightly different decisions at the grocery store, but they're still going to the grocery store.
You are seeing probably a bit of a change in how consumers think about where they want to spend their dollars, but the activity is, as you've seen across the board, up. I think the consumer continues to show some resiliency right now.
Yeah. Well, I'd say we're still benefiting too from the three major themes that the pandemic induced, and that's where the first one is suburbanization. I think we've seen obviously an uptick in population around our portfolio. Second being work from home. There's still a hybrid model out there, so the traffic patterns are still robust to our portfolio as people are cooking more at home or going to the shopping center for lunch as they typically might have gone elsewhere or closer to the office. Third, and probably the most important is still the last mile distribution component. Target just came out with a remarkable stat this past month saying that it's 40% cheaper for them to deliver goods that are ordered online from their store base versus from a distribution center.
I think that is again in the first inning of sort of adoption across the retail landscape. We're very, very focused on being first and last mile retail. We think that value proposition is really going to be a major differentiator for us going forward.
Our next question comes from the line of Michael Goldsmith with UBS. You may proceed with your question.
Good morning. Thanks a lot for taking my question. Along the lines of the cautious optimism, I guess in times when the consumer has pulled back, you know, how long has that taken before it impacts kind of the leasing discussions and then eventually your financials? Just trying to determine like, you know, if things get worse from here, you know, when does this start to show up in your conversations and in your numbers?
Yeah. I mean, I think every market cycle is different, so you know, it may show itself in different ways. I could say what we're seeing right now is not the slope or appetite for new deals because as I mentioned earlier in the conversation, you know, retailers are looking at the long play. You know, they make these long-term commitments, sign you know, fixed primary terms with options going forward, and they all have evolving retail strategies. Complementing what Conor said about the last mile distribution fulfillment, that there's greater margin value in being closest to the customer and shipping and distributing from store. Now is a great opportunity to secure that real estate that's necessary to meet your evolving fulfillment strategy within each individual company. In order to do so, you have to continue doing deals.
That said, you may you know, there may be certain areas that you start to see some pullback, you know, maybe on the higher end side. In terms of the value-oriented essential daily consumer and daily retailer that supports that customer, we continue to see the demand side hold up, trying to absorb that higher quality real estate that's still out there, as a result of the pandemic.
Yeah. I would just add, you know, if you think of some of this cautious optimism is because of where the real estate is today. You know, we spent a lot of years transforming the portfolio. Having it in these top markets embedded in the communities has been. It's just a real game changer. You see it with, you know, whether it be the curbside pickup and the way, you know, many of the retailers are using their store today as really a fulfillment point. That is a real, you know, we think that that's a real benefit.
If you look at the tenant mix that we have, it is essentially based, you know, whether it be grocers, off-price, home improvement, you know, and then just everyday goods and services, whether it be Dunkin' Donuts, Starbucks, Bagel Guys, that stuff continues to be, you know, doing very, very well. It gives us, you know, some comfort level and, you know, we sit in our office in a shopping center and watch the traffic every day to kind of gauge it a little bit.
Our next question comes from the line of Haendel St. Juste with Mizuho. You may proceed with your question.
Hey there. Good morning. A different question, on expenses, I guess. Can you discuss the mix of lease structures between fixed CAM, net lease growth? As expenses rise on contracts for various things and because of taxes and other items, is there potential for some pressure on NOI, although top line revenue likely remains strong? Thanks.
Yeah. Our margins have been improving quarter-over-quarter as you've gotten more of those retailers open. When you look at our lease economic spread, it compressed 20 basis points, you know, from 310 to 290. You're seeing more contribution and contributing to the recovery element of your operating expenses. Margin improvement is actually continuing to expand in a favorable way as we're moving out of the pandemic. As it relates to fixed CAMs to net leases, those are typically your two most dominant forms. For us, our fixed CAM program is now a multi-year program.
We look at a five plus year capital plan, so we have insight into where we're gonna be spending dollars over the near- to midterm, and that's all factored into the pricing as well as an inflation factor appreciating that the markets do change. Then it's also important to note that within the component of fixed CAM too, there are some recurring services that are contracted out for multi-year contracts, so it's not directly impacted by near-term inflationary pressures. Once you mix it all together, we still are in a very good position to absorb the pressures of the near term.
Yeah. The only thing I would add is the benefits of scale we have. You know, when we look at our portfolio and we bid out recurring services and we bid out some of these items that go into our expenses, we obviously get a bulk discount just because of the size of the amount of services and goods that we're purchasing. With the amount of technology that we've embedded in the portfolio as well, I feel like our expenses are, we typically try and make sure that we have the lowest triple net costs in a trade area because of that efficiency of scale. We are very mindful of that and use our scale to our advantage to keep our costs under control.
I will just 'cause you did mention specifically real estate taxes, that is excluded from your fixed CAM number.
Right. Now, having said that, I will add, though, if inflation was to run at 10% or 12% a year after year, you know, it would definitely have some impact. I mean, we've built in, as Dave mentioned, an inflation factor into our fixed CAM program. We think we've built it that it can absorb it.
Our next question comes from the line of Floris van Dijkum with Compass Point. You may proceed with your question.
Good morning, guys. I had a question on your return expectations and how they've changed since the beginning of the year. Obviously, what kind of impact the direct market typically is slower to react in terms of cap rates, but what kind of impacts are you seeing in your underwriting as you look at acquisitions? Are you underwriting higher cap rates or are your growth expectations rising as a result of higher inflation?
Yeah. There's no doubt that, you know, as cost of capital increases, our hurdle rates go up alongside it. We're very mindful of that. We try to stay extremely disciplined when we underwrite deals, very healthy in terms of inflation expenses rising in our assumptions in our underwriting. We take, I think, a very conservative approach to lease-up assumptions, making sure that we anticipate that these deals do take a fair amount of time from lease execution to opening, and that costs have been rising.
All of those factor into a hurdle rate that's certainly higher today than it was even three months ago. To your point on cap rates, you know, moving maybe a little bit less quickly than the overall market, you know, that's certainly the case, and it's very dependent upon, you know, the asset and the location. We've continued to see up through this month, transactions occurring at, you know, all-time low cap rates, not any dissimilar than what we saw three, four months ago. On the other hand, if you have a commodity power center that, you know, four months ago, a borrower or a buyer was borrowing, you know, in the 2s and they're now borrowing in the 5s, there's no doubt that that's gonna have a direct impact.
The composition of the asset and who your target audience is, whether it's an all-cash institutional buyer versus a levered private buyer, is gonna be a very meaningful difference as to how much movement we've seen in the cap rate.
Our next question comes to the line of Michael Mueller with JP Morgan. You may proceed with your question.
Hi. Is the $55 million Kier step-up investment inclusive of assumed debt, or is it just the cash paid? What was the implied cap rate on that purchase 'cause the back of the envelope seems like it was a fairly high cap rate.
Yeah, that is a net number. We factor in all of the, you know, cash liabilities debt that's in the joint venture. That was a $55 million payment net of all of those. I would tell you that it was a direct negotiation with one of our partners based upon our collective views of the value of the assets, and then factoring in sort of a, you know, minority position of ownership there. I would say that it, to your point, was a higher cap rate than what we would see those assets sell in the open market today.
Our next question comes to the line of Anthony Powell with Barclays. You may proceed with your question.
Hi, good morning. A lot of the e-commerce only players are saying that they're seeing a more material shift back to pre-COVID activity in terms of retail. Is that a positive or a negative for you? Is it a positive given that stores are more important, or is that maybe a headwind if you see less incremental activity from retailers looking to use your centers as last mile distribution?
At the end of the day in retail, it's omni-channel. You have to have both, right? I mean, I think the pandemic proved out that you know, being pure play online puts you at a bit of a disadvantage as it relates to distribution of margin being pure play. Maybe just in brick-and-mortar, there's probably advantages of having some online presence. I think it's a combination of both. I think you're gonna see, you know, e-com sales ebb and flow a little bit as you do see brick-and-mortar sales. But when you look holistically about the retail strategies, it's really infused as one together. I think net-net, as long as the total pie continues to grow, there's utility in the brick-and-mortar product and how they use that for distribution.
The other part is to focus on customer acquisition costs. I think when you look at the pure play e-commerce players, they have really been struggling to try and get control over their customer acquisition costs as sort of the major players continue to boost the costs involved with that. Advertising online continues to be extremely expensive. Where I think the integration of the brick-and-mortar stores really allows them to have a pretty nice return in terms of customer acquisition costs, and their margins are a lot healthier. I think it's a net benefit for us as most pure e-commerce players, as you've seen, are opening physical stores.
I mean, the lines are clearly blurring. Some of the, you know, e-commerce that you're talking about, the product itself is being picked up in the store. I mean, that's where we've seen this big benefit of being where the real estate is sitting today better than these markets. It's just, it is a fulfillment point as well.
Our next question comes to the line of Derek Johnston with Deutsche Bank. You may proceed with your question.
Hey, everybody. Good morning. On development, Kimco's held back on some pretty hard-sought in-hand entitlements. I guess, how are you thinking about development now, clearly given the potential economic slowdown and rising costs, but you know, also in the face of you know, rapidly rising rents for multi-family, retail desire for newness. How do you balance new development starts and you know, maybe the potential timing with your balance sheet to flip towards more offense given these rents and demand? Thanks.
Yeah. I think you actually had the answer in your question, through all the parts you just mentioned. If we break it down, you know, one, I think we're in a wonderful position right now. We don't have long-term capital commitments with big development projects, you know, as compared to where we were in the last five years. The Milton is continuing, you know, to move under construction down in Arlington market as phase two of our Pentagon project. It's a GMP contract, so we feel good about the pricing there. As it relates to new activity, as you can see in the supplemental, you know, we have thousands of entitled units that are at our option to activate.
What we're doing right now is we're looking at the balance sheet, we're looking at our capital plan, we're looking at the use of funds and the opportunities ahead of us, and then we're looking at the entitlements that we have in place and how best to activate them. We go through our decision tree. Do we self-develop? Do we joint venture? Do we ground lease? And at what time is that appropriate to do so? We are looking at near-term opportunities, what makes sense, and then also what we have sort of, you know, in the midterm and how we wanna pull it forward. That's our job. We continue to assess it, you know, on a quarterly basis.
If we feel like there's an opportunity to pull some of those out of the entitlement shelf and activate them, we will.
We're very focused on continuing on the growth FFO path that we've been on. I think when you look at the opportunity set that we have with the entitlements, we're going to be mindful of not activating too many all at once. When we do activate them, we're going to see what's the best way to continue to enhance the FFO growth profile of the organization.
Our next question comes from the line of Ki Bin Kim with Truist. You may proceed with your question.
Thanks. Good morning. When you look at the top of the demand funnel for your customers, I'll just kind of put it in perspective. If you have a good quality space, you know, how many tenants are looking at that type of space today versus a couple quarters ago? I'm curious if deals are taking longer to close. I guess overall, just trying to gauge how quickly open-to-buy plans might be changing among your customer base.
Yeah. I mean, with again, high-quality real estate inventory that does not come available all that often, we have seen that we continue to have multiple bidders at the table, which obviously helps the negotiation, and strategy. I also think you've seen, as we mentioned multiple times already today, is that people are evolving their real estate strategy and how they wanna utilize it. Whereas, you know, several quarters ago, you know, Target announced that they're going for full-size formats again, which was something, you know, pretty unique. They were really focused on the small format concept for years and penetrating urban markets. People or retailers are constantly evolving and changing, their needs and wants, which is creating demand, for our real estate.
As it relates to the timing and activation of deals in the negotiating process, I think both sides are actually very focused on trying to get the deals done as quickly as possible. We have a number of conforming leases. We're working, you know, directly with a lot of our retailers of how best to expedite that discussion of that negotiation because both have targets to open, right? They have their own growth targets, and the way to achieve those is to get their stores open as quick as possible. We have our own growth targets that we wanna get them open as quickly as possible. There's a mutual benefit actually now where we've both felt pressures, and we've both had points of friction within the process of, say, construction.
That's pretty unique, and so it's brought us together to find better solutions, which I think net, as we go forward, is just, you know, better for the industry and better for ourselves, as we work closer in partnership with our retailers.
Our next question comes from the line of Tayo Okusanya with Credit Suisse. You may proceed with your question.
Hi. Yes, good morning. I'm trying to get a better handle on the guidance raise. You beat by $0.02, raised midpoint of guidance by $0.04, and I'm just trying to understand what that incremental piece is. Are you expecting better same-store NOI growth? Is it better occupancy, reversal of credit provisions? Just trying to get a better sense of what that additional increase in guidance alludes to.
Yeah. Again, you know, when we look at the balance of the year, we think that, you know, we have a reasonable run rate in this, you know, $0.39 level of, you know, built into the guidance level, you know, a certain amount of potential credit loss that, we think we can absorb while we're doing it. We do expect that, you know, same-site NOI will remain positive for the year. Again, as I mentioned, there are pretty tough comps in the third and fourth quarters, but for the full year, we do expect that. Occupancy has increased certainly over last year, and there's more minimum rent that's coming online. That's all built into it as well.
There are some investments that, you know, Ross has mentioned, that were not really part of the initial plan, that we're using the cash that's on the balance sheet, and the return on that is quite favorable relative to the, you know, the interest earned sitting in our investment bank accounts.
Gotcha. Great.
Our next question comes from the line of Linda Tsai with Jefferies. You may proceed with your question.
Yes. Hi, good morning. Just given the changes in the landscape with the Albertsons lockup extended a little further out, are you thinking any differently about the use of its proceeds?
You know, we really haven't, Linda. I think we're in a unique position where, you know, come September, which is not far off, you know, we'll be in a position to look at the landscape of opportunities. You know, we have a number of items that we feel like are unique to Kimco that we can invest in through our different, as Ross mentioned, our different unique investment opportunities. We have some bonds coming due that we could potentially pay off. The preferreds are gonna be callable as well. There might be unique investment opportunities that present themselves come September as well.
You know, as I mentioned in my remarks, I think the key for us is being patient and focusing on unique opportunities where Kimco can really enhance shareholder value and create a lot of value in the near term. That's where I think we're uniquely positioned to take advantage of any opportunity that presents itself.
Yeah, I mean, look, the nice thing about the investment, if you do the dividend yield on our investment in Albertsons, almost anything that we do, whether it be debt pay down or any of the other investments that Conor just mentioned, it is gonna be accretive. We have a lot of good options available to us and hopefully a lot of opportunity.
Our next question comes from the line of Craig Mailman with Citi. You may proceed with your question.
It's Michael Bilerman. I just have two quick follow-ups. Just one, as we continue the conversation on Albertsons, has anything changed, I guess, from Kimco's position in terms of potential monetization options, in the sense of obviously as a real estate company, Albertsons does have some real estate, and you could create a type of real estate transaction, like that. Has that changed at all in your mindset as they go through strategic alternatives, or is the only option to sell stock and take cash? I had just a quick follow-up on JVs.
No, it really hasn't changed, Michael. I mean, we've done sale-leasebacks with them before in the past. We're in a position where obviously we can do more of that as well. We've been focused on the assets where they own their grocery store within an asset where we own the surrounding retail, so we get a cap rate compression on sort of the entire asset by controlling the grocery anchor. So we still have that part of the playbook available to us. We'll continue to wait and see how the strategic alternatives play out, but that obviously is a game plan we've used before and continue to have that as an opportunity.
Conor, are you saying that effectively, investors should think about, you know, either an option of taking all the stock and, selling down portions of it over time or converting some of your stock holdings into real estate assets through sale leasebacks, that we should start thinking about multiple options for this stake?
No. I think, Michael, the way to think about it is the marketable securities that we own will be used to be monetized, and then those proceeds will be redistributed in the best investment vehicle possible. I mean, I think that's the easiest way to think about it. The unique sale-leaseback situations would be separated and apart from that.
Okay. Then just on Kier in buying the stake direct, which, you know, looks like you got that at about a 7% cap rate or at least effective NOI yield into your results. How should we think about the desire for you to syndicate out that equity arguably at more of an NAV value and, you know, effectively earn that spread, right? You know, are you more desirous to buy discounted pieces of paper from your JV partners, or are you trying to, you know, bring in others, you know, you're sitting here now in this asset, let's call it a $2 billion GAV at that 7% cap, you own 52% of it. What's the go-forward plan? Are you gonna try to, you know, syndicate it back out or, you know, continue to buy in to own 100% of these assets?
Yeah, no, it's a good question. I think when you look at the Kier Partnership specifically, this is our longest-standing joint venture. It was established in 1999. I think ultimately there was a point in time where it made sense for the one smallest minority partner to exit. You know, we think that the assets are tremendous within our portfolio. We would love to own more of it. At the same time, we have a fantastic partner in the New York State Common Retirement Fund that has been alongside us since the beginning. We'll continue to maintain a great relationship with them, and if and when the opportunity presents itself that they have a desire to exit, we'll be ready to have that conversation. Specific to the Kier venture, we don't anticipate bringing in any new partners.
Our next question comes from the line of Haendel St. Juste with Mizuho. You may proceed with your question.
Hey there. Glenn, I guess maybe for you. I was hoping you could be a bit more specific or provide a range of what the 2022 same-site NOI guide is now on a clean ex-prior period adjustment basis and also on a GAAP basis. It used to be 3% for both, I recall. Then if you could also clarify what were the prior period rents in second quarter. Thanks.
As it relates to same-site guidance for the full year, as I mentioned, we expect it to be positive. We are not providing a range. You can see what's happened during you know the first half of the year. We're sitting currently at 6.1% for the six months, 3.4% for the second quarter. But again, there's still some uncertainty in there, and we have these very difficult comps that are in the third and fourth quarter. I really don't wanna provide a range at this point, but to give you comfort that for the full year it'll be positive. As it relates to prior period rents from cash-basis tenants, that was about $5 million that was collected.
As I mentioned, we, you know, collected about 76% of the rent from those same cash-basis tenants during the second quarter. That difference that wasn't collected, which was reserved, is also about $5 million. The net of that kinda they kinda wash out each other.
That is all the time we have for today's question and answer session. I would like to turn the floor back over to management for closing comments.
Thank you very much for joining us today. Again, our supplemental is posted on our website. Enjoy the rest of your summer.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your summer.