© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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. [Operator Instructions] 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 includes 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.
And 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 5 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 accomplishment 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, in 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 10 years.
During the quarter, we signed 150 new leases totaling 711,000 square feet. Our new lease spread was 16.6% and 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 square feet. The second quarter renewals and options spread was 5.6%, with options ending at 6.4% and renewals is 5%.
Total second quarter deal volume was 498 deals totaling 2.3 million square feet with the combined leasing spread of 7.1%. We executed 2 new gross releases this quarter, which helped us cross the milestone of 80% of annual base rent coming from grocery-anchored properties ahead of schedule. And 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 craft with a 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 5-year average retention rate. The high retention rate is why we only had 91 total vacates for 223,000 square feet 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, focused on leasing, work to expedite our tenant openings, entitle our assets for future density opportunities, maintain a strong balance sheet 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 macro economy 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 3 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 KIR 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 3 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 2 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 2 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 3 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 share of noncore 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 interest.
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 2 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 and 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 ABR 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 $25.3 raising $11.3 million. In addition, we repurchased $36.1 million of our 3-38 notes due in June of 2023, and $11 million of our 3-3/8 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 9 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 to $1.57 from the previous range of $1.50 to $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 to $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 to 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 package.
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.
And now we are ready to take your questions.
[Operator Instructions] Our first question comes from the line of Craig Schmidt with Bank of America.
I'm just wondering the maintenance of the strong new demand and pricing power. Is this strength from your grocery/essential-based shopping centers? Or is it just a reflection of a positive run rate on leasing completed and put to bed for '22?
Yes, I mean, I think that the quality of our real estate, the grocery anchor at essential shopping center last mile closest to the customer is really at the forefront, that's your foundation and what you build upon.
And 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 center as 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. So I think we continue to see the strong demand 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 3 million square feet of new retail construction was completed. So when you have that, you have this COVID on inventory and the high-quality real estate all sort of comes together puts us in a really good position.
Our next question comes from the line of Adam Kramer with Morgan Stanley.
Appreciate all kind of the commentary. And especially kind of the -- I think, Conor, some of your earlier comments, I think you kind of outlined clearly right, there's some cracks showing in the macro, and I think you're maybe a little bit more open than others about kind of recognizing that in your comments. And I think to hopefully I'm not putting words in your mouth, but I think you kind of called out cautious optimism regarding kind of the quarter and how you see things going forward. I'm wondering 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. So I think where we are today is you're seeing our product really resonate with the consumer. 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. And where our portfolio is positioned in the first drink some of the major metro markets, employment is strong, the wage increases that we're seeing are resilient and the shoppers are continuing to gravitate towards our product. And so 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 emerged 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 landlords camp. And we're cautious of the optimism that it's going to continue as we see the pipeline continuing to expand with the right retailers that are creditworthy 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.
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. So when you're in a consortium that owns a sizable amount of the stock 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. And so 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 there's obviously this final act that we want to see through. And we do believe that the management of Albertsons is doing everything possible to maximize value. And so 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.
I fully [avoid] that the balance sheet is in a strong position with good liquidity, but there was a new story out this week about a $400 million portfolio you guys are buying, you were active in the quarter. And I'm just kind of curious on 2 things. One, as you guys are underwriting where the equity value is today, kind of what are the return hurdles you're looking for to be equal this year? And number two, just what's the plan on potentially financing ramping acquisition activity?
Yes, Craig, I'm happy to address that. So 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. So when we think about a cap rate in this environment, it really is a spot check on day 1 -- our focus is on creating value and enhancing growth for the company and doing it in an accretive way. So 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. we were able to put out capital at very attractive returns day 1.
And so when you blend the return on our 3 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 going to get in the short, medium and long term.
In terms of the funding, 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. And then, of course, ultimately, we'll have our Albertsons' monetization, which we'll be able to put to work there. So 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.
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 about 54% to 57%. I just want to 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, the $0.40, there's about $0.01 of all things that are more or less like one time. There's some LTAs in there. It was a little bit of a settlement on 1 of our joint ventures. And we did have about $4 million of benefit from credit loss related items, 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. And as I mentioned, we do have a range of $1 million to $6 million of credit loss, that's still in the numbers. So that's kind of where we get to that upper end of the range, which would imply roughly a $0.39 quarter for the third and fourth quarters. So we have those components baked into it.
And again, we are cautiously optimistic, as Conor said, but we are watching pretty closely what's happening in the economy. We're watching interest rates and we think that the guidance that we put out, I'm happy that we've decreased it to the level that we have, but we want to keep it at the level that we feel is achievable.
Our next question comes from the line of Juan Sanabria with BMO Capital Markets.
I just wanted to touch on the opportunism that you maybe see and/or are positioned for given our balance sheet strength and liquidity. I mean is there possible 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. We'll continue to be extremely disciplined with the investments that we make. Based upon our liquidity position, our balance sheet, we think that we're in a wonderful position to be opportunistic once that presents itself. You saw that in the early stages of the pandemic, and then we had a very quick recovery.
So 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 going to 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 they want.
Yes. And one of the nice things about the structured investments is, as you could see or we put out in the release, there were structured investments that we closed on in the third quarter were the fourth one that closed just subsequent to quarter end. And while it's not a tremendous amount of capital outlay, I think combined, it was just about $72 million for those 4 deals. It does provide a potential pipeline for a much larger transaction if that opportunity presents itself.
So 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.
Just a question on the consumer. As you look across your tenants, any -- are they seeing any drop off? So basically, what I'm getting at is 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 noncore shoppers or restaurant ones 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 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.
Yes. It's a good question, go-for making me think a little bit here. So I'm going to use a little bit of fact and then a little bit of anecdotal my opinion and assumptions. So traffic-wise, when we compare our numbers to 2021 and where it is, it's up over 10% you care back when you compare it back to 2019 levels, it's more or less in line with where it was then pre-pandemic. So you have the volume of activity there on site, which is good.
Then 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. So I think that probably broads your base beyond just your core recurring shopper.
I do think you're seeing some value trade occurring, obviously, with price inflation being what it is. Some of those customers have continued to buy, but they may be focused more on value purchasing, which 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. So you're 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 is up and I think the consumer continues to show some resiliency right now.
Yes. I'd say we're still benefiting too from the 3 major themes that pandemic induced and that's the first one is suburbanization. I think we've seen, obviously, an uptick in population around our portfolio. The 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. And then third and probably the most important is still sort of 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. So I think that is, again, in the first inning of sort of adoption across the retail landscape. We're very, very focused in 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.
Along the lines of the positive optimism, I guess, in times when the consumer has pulled back, how long has that taken before it impacts kind of the leasing discussions and then eventually your financials. Just trying to determine like if things get worse from here, when does this start to show up in your conversation and in your numbers?
Yes. I mean, I think every market cycle is different. So it may show itself in different ways. I could say what we're seeing right now is not the slow of our appetite for new deals because as I mentioned earlier in the conversation, retailers are looking at the long play. They make these long-term commitments, sign 6 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 and being closest to the customer and shipping and distributing from store.
So now is a great opportunity to secure that real estate that's necessary to meet your evolving fulfillment strategy within each individual company. So in order to do so, you have to continue doing deals. That said, you may -- there may be certain areas that you start to see some some pullback, maybe on the higher-end side. But 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.
Yes. I would just add, if you think some of this cautious optimism is because of where the real estate is today. We spent a lot of years transforming the portfolio. So having it in these top markets embedded in the communities, has been -- it's just a real game changer. And you see it with whether it'd be the curbside pickup and the way many of the retailers are using their store today as really a fulfillment point. So that is a real -- we think that, that's a real benefit.
And then if you look at the tenant mix that we have, it is essentially based, whether it'd be grocers, off-price, home improvement, and then just everyday goods and services, whether it'd be Dunkin' Donuts, Starbucks, [Begoguys], that stuff continues to be doing very, very well. So it gives us some comfort level, and 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.
So 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 with various things and because of taxes and other items, is there a potential for some pressure on NOI although top line revenue likely remains strong?
Yes. So line, 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 from 310 to 390. So you're seeing more contribution in contributing to the recovery. Element of your operating expenses, so margin improvement is actually continuing to expand in a favorable way as we're moving out of the pandemic.
As it relates to fixed as to net leases, those are typically our most dominant forms. For us, our fixed camp program is now a multiyear program. We look at a 5-plus year capital plan. So we have an insight to where we're going to be spending dollars over the the near to midterm, and that's all factored into the pricing as well as an inflation factor appreciating the markets do change.
And 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 multiyear contracts. So it's not directly impacted by near-term inflationary pressures. So once you mix it all together, we still are in a very good position to absorb yes, the pressures of the near term.
Yes. The only thing I would add is the benefits of scale we have. 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.
And so with the amount of technology that we've embedded in the portfolio as well, I feel like our 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. So we are very mindful of that and use our scale to our advantage to keep our costs under control.
And I will just because 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, year after year, it would definitely have some impact. But I mean, we've built in, as Dave mentioned, an inflation factor into our fixed cam program. So we think we built it that it can absorb it.
Our next question comes from the line of Floris Van Dijkum with Compass Point.
I had a question on your return expectations and how they've changed since the beginning of the year. And 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 of, as you look at acquisitions, are you underwriting higher cap rates? Or are your growth expectations rising as a result of higher inflation?
Yes. There's no doubt that as cost of capital increases, our hurdle rates go up alongside it. So 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 cost have been rising.
So all of those factor into a hurdle rate that's certainly higher today than it was even 3 months ago.
To your point on cap rates, moving maybe a little bit less quickly than the overall market, that's certainly the case. And it's very dependent upon the asset and the location. We've continued to see up through this month transactions occurring at all-time low cap rates, not any dissimilar than what we saw 3, 4 months ago.
On the other hand, if you have a commodity power center that 4 months ago, a borrower or a buyer whose borrowing in the 2s and they're now borrowing in the 5s, there's no doubt that, that's going to have a direct impact. So 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 going to be a very meaningful difference as to how much movement we've seen in the cap rate.
Our next question comes from the line of Mike Mueller with JP Morgan.
Is the $55 million year step-up investment inclusive of assumed debt? Or is it just the cash paid? And what was the implied cap rate on that purchase? Because the back of the envelope, seems like it was a fairly high cap rate.
Yes, that is a net number. We factor in all of the cash liabilities debt that's in the joint venture. So 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 minority position of ownership there. So I would say that, to your point, it was a higher cap rate than what we would see those assets sell in the open market today.
Our next question comes from the line of Anthony Powell with Barclays.
A lot of the e-commerce only player are just saying that they're seeing a more material shift back to pre-COVID activity in terms of retail. Is that a positive or negative for you? Is that a positive given that store is 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?
Anthony, the day at retail, it's omnichannel. You have to have both, right? I mean, I think the pandemic proved out that you can beam pure-play online is put you at a bit of a disadvantage as it relates to distribution of margin being pure play. And maybe just in brick-and-mortar, there's probably advantages of having some online presence. So I think it's a combination of both.
I think you're going to see 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. So I think net-net, as long as the total pie continues to grow, there is utility and the brick-and-mortar product and how they use that for distribution.
Really the other part is it's a 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 that continue to boost the 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. So I think it's a net benefit for us as most pure e-commerce players, as you've seen, our opening physical stores.
Yes. I mean look, the lines are clearly blurring. Some of the 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 -- we have the real estate is sitting today better than these markets. It's just -- it is a fulfillment point as well.
Our next question comes from the line of Derek Johnston with Deutsche Bank.
On development, -- so Kim's held back on some pretty hard sought in-hand entitlements. So I guess, how are you thinking about development now? Clearly, given the potential economic slowdown in rising costs, but also in the face of rapidly rising rents for multifamily, desire for newness how do you balance new development starts and maybe the potential timing with your balance sheet to flip towards more opens given these rents and demand?
Yes, I think you actually have the answer in your question through all the parts you mine. So if we break it down one, I think we're in a wonderful position right now. We don't have long-term capital commitments with big development projects as compared to where we were in the last 5 years. Milton is continuing to move under construction down in Arlington market as Phase 2 of our Pentagon project, GMAX contracts.
So we feel good about the pricing there. As it relates to new activity, as you can see in the supplemental, we have thousands of entitled units that are at our option to and so 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.
So we are looking at near-term opportunities, what makes sense and then also what we have sort of in the midterm and how we want to pull it forward. So that's our job. We continue to assess it on a quarterly basis. And 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. And 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. But 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.
So when you look at the top of the demand funnel for your customers, just confident in perspective. When -- if you have a good quality space, how many tenants are looking at that type of space today versus a couple of quarters ago? And I'm curious if deals are taking longer to close, I guess, overall, just trying to gauge how quickly open buy plans might be changing amongst your customer base?
Yes. 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. And I also think you've seen, as we've mentioned multiple times already today, is that people are evolving their real estate strategy and how they want to utilize it. So whereas several quarters ago, target announced that they're going for full-size formats again, which was something pretty unique because they're really focused on the small format concept for years and penetrating urban markets.
So people -- our 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 and 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 directly with a lot of our retailers of how best to expedite that discussion in that negotiation because both have targets to open, right? They have target, 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 want to get them open as quickly as possible. So there's a mutual benefit actually now where we both felt pressures, and we both had a point 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-net as we go forward is just 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.
So I'm trying to get a better handle on the guidance raise you beat by $0.02, raise 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 does that additional increase in guidance I alluded to?
Yes. Again, when we look at the balance of the year, -- we think that we have a reasonable run rate in this $0.39 level have built into the guidance level, a certain amount of potential credit loss that we think we can absorb while we're doing it. But we do expect that same-site NOI 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 the last year, and there's more minimum rent that's coming online. So that's all built into it as well. And then there are some investments that 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 interest earned sitting in our investment bank accounts.
Our next question comes from the line of Linda Tsai with Jefferies.
Yes. Just given the changes in the landscape of the Albertsons lock extended a little further out. Are you thinking any differently about the use of its proceeds?
We really haven’t, Linda, I think we’re in a unique position where come September, which is not far off we’ll be in a position to look at the landscape of opportunities. 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 or different unique investment opportunities. We have some bonds coming due that we could potentially pay off. The preferreds are going to be callable as well. There might be unique investment opportunities that present themselves come from September as well. So 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. And that’s where I think we’re uniquely positioned to take advantage of any opportunity that presents itself.
Yes. 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’d be debt pay down or any of the other investments that Conor just mentioned, it is going to be accretive. So 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.
It's Michael Bilerman. I just had 2 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. So 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? And then I had just had a quick follow-up on JVs.
Really hasn't changed, Michael. I mean we've done sale leasebacks of that 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.
So 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.
So kind of are you saying that effectively investors should think about 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 separate and apart from that.
Okay. And then just on KIR in buying the stake direct, which looks like you got that at about 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 effectively earn that spread, right?
Are you more desire to buy discounted pieces of paper from your JV partners? Or are you trying to bring in others? 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 going to try to syndicated back out or continue to buy in to own 100% of these assets?
Yes. No, it's a good question. I think when you look at the KIR venture specifically, this is our longest-standing joint venture, it was established in 1999. So I think ultimately, there was a point in time where it made sense for the 1 smallest minority partner to exit. We think that their 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.
So 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. But specific to the KIR venture, we don't anticipate bringing in any new partners.
Our next question comes from the line of Haendel St. Juste with Mizuho.
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-store NOI guide now on a clean ex prior adjustment -- expire period adjustment basis and also on a GAAP basis. It used to be 3% for both, I recall. And then if you could also clarify what were the prior period rent in the second quarter?
As it relates to the 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 the first half of the year. So we're sitting currently at 6.1% for the 6 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. So I really don't want to provide a range at this point. But to give you comfort that for the full year, it will be positive.
As it relates to prior period rents from cash basis tenants, that was about $5 million that was collected and as I mentioned, we collected about 76% of the rent from those same cash basis tenants during the second quarter, so that difference that wasn't collected, which was reserved, is also about $5 million. So the net of that kind of -- they kind of 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 supplementals posted are 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 day.