Earnings Call Transcript
KIMCO REALTY CORP (KIM)
Earnings Call Transcript - KIM Q4 2020
Operator, Operator
Good morning. Welcome to Kimco’s Fourth Quarter 2020 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to David Bujnicki, Senior VP, Investor Relations and Strategy. Go ahead.
David Bujnicki, Senior VP, Investor Relations and Strategy
Good morning and thank you for joining Kimco’s fourth quarter 2020 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; David 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. 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 measures can be found in the Investor Relations area of our website. Also, in the event our call incurs technical difficulties, we will try to resolve them as quickly as possible and if the need arises, we will post additional information to our IR website. And with that, I will turn the call over to Conor.
Conor Flynn, CEO
Thanks, Dave. Good morning and thanks for joining us today. I will begin by giving a quick overview of our accomplishments in 2020 and our strategic focus for 2021 and beyond. Ross will follow with updates on transactions and Glenn will close with our key metrics and guidance for 2021. For all of us, 2020 was a year that will not soon be forgotten. COVID, the political landscape, social unrest, and the responses to these events all converged in a way that will forever change our way of life. 2020 was also a year that demonstrated in volatile times, the best companies are the ones that are able to withstand economic challenges, mitigate risk, and take advantage of opportunities. In the shopping center sector, this requires a strong balance sheet, a resilient, well-located portfolio, and a superior management team. I am happy to report that while we are not immune to the volatility of 2020, Kimco’s open-air, grocery-anchored shopping centers and mixed-use assets performed well, and we have stayed strong, confident, and positive about the opportunity in the coming year. Our portfolio withstood all that the pandemic threw at us, as our 2020 vision strategy to reposition our portfolio was validated. Our grocery-anchored essential services and mixed-use assets concentrated in the strongest markets in the U.S. proved resilient. In 2020, we saw continued improvement in both the percentage of ABR coming from essential retailers and grocery-anchored centers. Growing the portfolio from 77% of ABR from grocery-anchored properties to 85% plus remains a strategic focus across the organization. We are encouraged by the progress and the increasing level of opportunities in the pipeline we are currently evaluating. As part of these efforts, we are pleased to share today the upcoming opening of Amazon Fresh at our Marketplace at Factoria in Bellevue, Washington. During the fourth quarter, we executed 92 new leases, totaling 406,000 square feet, which exceeded the amount achieved in the fourth quarter of 2019. The true test of a portfolio’s quality and durability is leasing and the ability to drive rent. To that point, new leasing spreads remained positive, rising 6.8% during the fourth quarter. We anticipate that our range between economic and physical occupancy will continue to widen as a precursor to future cash flow growth. With the help of our nationwide network of relationships, tenants, brokers, and our in-house team, we are experiencing robust demand from our essential retailers who continue to take advantage of the COVID surge that allows them to boost cash reserves, invest in the existing stores, and expand their store portfolio to better serve their customers. We are also laser-focused on keeping our existing tenants and continue to do everything we can to help them overcome the pandemic and be positioned to thrive. Our tenant assistance program, or TAP, helps small businesses navigate the new round of PPP funding. After successfully helping our small shop tenants navigate the first round of PPP funding, we believe we have aligned with best-in-class partners to continue to aid our small business tenants in accessing capital at their most critical time of need. Our strong balance sheet, well-positioned portfolio, and tenant initiatives are all the results of our best-in-class team and approach. Specifically, our leasing team was proactive in its efforts to work with current and prospective tenants, and our finance, planning, technology, investor relations, and legal teams effectively navigated numerous obstacles and kept us focused without skipping a beat. So where do we go from here? First, our highest priority is leasing, leasing, leasing. The good news is we have visible growth in the portfolio and meaningful free cash flow to fund our leasing strategy. This has provided us the confidence to provide an outlook for 2021. We anticipate the first half of the year to remain challenging, especially for those categories dramatically impacted by the pandemic-induced shutdowns. It is worth highlighting that our team pushed this portfolio to all-time high occupancies pre-pandemic, and we are determined to get back to that level and exceed it. While anticipating the speed at which we will recover NOI is challenging, we do expect rents to hold up, especially in our well-located boxes that are in high demand from categories that include grocery, off-price, home goods, home improvement, furniture, health, wellness, medical, and beauty. It’s interesting to note we are starting to experience a rebound in both restaurant demand and value fitness retailers. Finally, on our long-term strategic focus, we continue to believe that streamlining the portfolio over the past 5 years will result in meaningful long-term value creation for our shareholders. We are focused on the highest and best use of our real estate and believe the 80/20 rule applies to our assets and gives us tremendous flexibility and adaptability to create value in the future through our entitlement initiative. Specifically, 80% of our real estate consists of parking lots that are not generating any revenue, and 20% is single-story buildings. With our focus on clustering our assets in dense areas with significant barriers to entry, our assets are in an ideal position for growth as the surrounding areas develop vertically. Our entitlement team is sharing our ESG accomplishments with all local municipalities as part of our efforts to show that we will be good stewards of their neighborhoods and that we want to work together to make sure our assets continue to evolve alongside the community. We believe it is important that our approach to real estate evolve with changing circumstances because that is exactly what our tenants are doing. The best-in-class tenants are looking at their real estate differently. In many cases, their real estate team is now integrated into the entire supply chain; distribution, fulfillment, e-commerce, and store decisions are all integrated on how to best service the customer. The store, which is optimized for distribution and fulfillment, continues to shine as the most economic way to get goods and services into customers’ hands. Best Buy CEO Corie Barry, at the CES conference, was very clear when she said physical stores are expected to play a massive role in the company’s fulfillment effort. Target also stated that more than 95% of sales are fulfilled by its stores. I continue to share the words from our largest tenant: the role of the physical store is poised to become broader than ever, with the locations serving as fulfillment epicenters that quickly and easily get customers whatever they need. Put another way, the convergence of retail and industrial has accelerated, and we are positioning the Kimco portfolio to take advantage of this new utilization by partnering with our retailers to ensure that Kimco assets are all optimized to gain market share and to make the stores of Kimco even more valuable. In closing, Kimco’s open-air grocery-anchored portfolio provides consumers with a safe and easily accessible destination for goods and services. Our diverse tenant mix and targeted geographic presence in the strongest growth markets, supported by our well-capitalized balance sheet and our entrepreneurial approach, position us to unlock value for all stakeholders in the years to come. With that, I turn the call over to Ross.
Ross Cooper, President and Chief Investment Officer
Thank you, Conor, and good morning. As Conor discussed, 2020 was a challenging year, but there are signs of life in the transactions market with deal flow starting to pick back up. The overall transaction volumes from March through year-end were down close to 85%, but there were several late 2020 deals that showcase the general theme we have seen occurring. The majority of transactions have been with essential-based retail anchors, notably grocery. For the most part, size is good, but too big can result in the inability to finance large or nonessential-based tenancy, thus requiring a much bigger equity check for those deals. For the smaller grocery assets, the financing community has remained resilient, but again, rent rolling cash flow uncertainty for the chunkier assets has made those a bit more challenging. Multiple grocery-anchored deals have transacted at sub 6% cap rates in Denver, South Florida, California, Washington DC, North Carolina, and throughout the major primary and secondary markets in the U.S. While we are bullish on that asset type, which represents the core products within our portfolio, there is no shortage of capital chasing those deals. As we discussed on last quarter’s earnings call, the limited supply of attractively priced, high-quality assets versus our current cost of capital has led us to tailor our investment program. As it relates to our structured investments program, we made two small investments on a pair of very high-quality shopping centers during the quarter: a $25 million mezzanine financing on a strong South Florida shopping center and a $10 million preferred equity investment on a densely located center in Queens, New York, both of which will generate an accretive return versus our cost of capital, with a chance to possibly acquire in the future. Additionally, as we have done many times recently, we were able to leverage our strong tenant relationships, particularly with those that are real estate-rich, to uncover another unique investment that represents significant dislocation and value. To that point, we completed a sale-leaseback transaction in which we acquired 2 Rite Aid distribution centers in California for approximately $85 million. These distribution centers service all 540-plus stores for the pharmacy chain in the state of California. Rite Aid is leasing these back on a long-term basis with annual rent bumps and zero landlord obligation. This investment will provide an attractive return with an IRR well in excess of our cost of capital and enhanced NAV for the company. We continue to evaluate new opportunities selectively and believe our tenant relationships, flexible structuring, and conviction in our product type put us in an enviable position to capture upside in a period of dislocation. This is an important long-term complement to our business, with the one constant being our approach of owning high-quality assets at a positive spread to our current cost of capital, while mitigating potential downside risk. Furthermore, we believe this approach will create a future pipeline of opportunistic acquisitions with the right of first refusal or right of first offer when our cost of capital returns. With that, I will pass it along to Glenn for the financial summary.
Glenn Cohen, CFO
Thanks, Ross, and good morning. With our fourth-quarter operating results, we delivered further improvement compared to the sequential third quarter, with higher rent collections and improvement in credit loss. For the fourth quarter of 2020, NAREIT FFO was $133 million or $0.31 per diluted share, as compared to $151.9 million or $0.36 per diluted share for the fourth quarter of 2019. The reduction was mainly due to rent abatements and increased credit loss of $21.2 million and lower net recovery income of $5.7 million. This reduction was offset by lower preferred dividends of $3.1 million and a $7.2 million charge for the redemption of preferred stock in the fourth quarter of 2019. Now, although not included in NAREIT FFO, during the fourth quarter of 2020, we did record a $150.1 million unrealized gain on the mark-to-market of our marketable securities, which was primarily driven by the change in value of our 39.8 million shares of Albertsons stock. Our stake in Albertsons is valued in excess of $650 million today. For the full year 2020, NAREIT FFO was $503.7 million or $1.17 per diluted share as compared to $608.4 million or $1.44 per diluted share for the prior year. The change was primarily due to increases in rent abatements, credit loss, and straight-line reserves aggregating $105.8 million and the NOI impact of disposition activity during 2019 and 2020, totaling $24.7 million. In addition, during 2020, we incurred a $7.5 million charge for the early extinguishment of debt. These reductions were offset by lower financing costs of $15.7 million and an $18.5 million charge for the redemption of $575 million of preferred stock during 2019. Although we continue to be impacted by the effects of the pandemic, our operating portfolio has shown signs of improvement, as Conor discussed earlier. All our shopping centers remain open, and over 97% of our tenants are open and operating. Collections have continued to improve. We collected 92% of fourth-quarter base rents, and this compares to third-quarter collections of 90%. Deferrals granted during the fourth quarter were just under 2%, down from 5% during the third quarter. At year-end 2020, 8.2% of our annual base rents were from tenants on a cash basis of accounting, and 50% of that has been collected. As of year-end, our total uncollectible reserve was $80.1 million or 46% of our total pro-rata share of outstanding accounts receivable. Now, turning to the balance sheet, we finished the fourth quarter with consolidated net debt-to-EBITDA of 7.1x and on a look-through basis, including pro-rata share of JV debt and preferred stock outstanding, a level of 7.9x. This represents further progress from the 7.6x and 8.5x levels reported last quarter, with the improvement attributable to lower credit loss. On a pro forma basis, if our Albertsons investment was converted to cash, these metrics would improve by a full turn to 6.1x and 7x respectively, levels better than we began last year. We ended 2020 with a strong liquidity position comprised of over $290 million in cash and $2 billion available on our untapped revolving credit facility. We have only $140 million of consolidated mortgage debt maturing during 2021, and our next bond does not mature until November 2022. Our consolidated weighted average net maturity profile stood at 10.9 years, one of the longest in the REIT industry. In addition, our unsecured bond credit spreads have improved significantly. By way of example, our 10-year green bond issued in July 2020 at 210 basis points over the 10-year treasury is currently trading in the area of 90 basis points over treasury. This spread is the lowest among all our peers. Regarding our common dividend, we paid a fourth-quarter 2020 common dividend of $0.16 per share. As such, we expect our Board of Directors to declare the common dividend during the first quarter of 2021, reflecting a more normalized level that at least equals our expected 2021 taxable income. Now, for guidance, while the pandemic and its effects on certain of our tenants continued, we are comfortable establishing NAREIT FFO per share guidance for 2021. Our initial NAREIT FFO per share guidance range is $1.18 to $1.24. This is also a wider range than we have historically provided, taking into account the potential variability of credit loss levels due to the ongoing pandemic. Other assumptions include flat to modestly higher corporate financing costs and G&A expenses as well as minimal net neutral acquisition and disposition activity. This 2021 guidance range assumes no transactional income or expense, no monetization of our Albertsons investment, and no additional common equity issued. Lastly, keep in mind that our 2021 first quarter results will be relative to a pre-COVID first quarter in 2020. Notwithstanding the expected optics of the first-quarter results, our NAREIT FFO per share guidance range of $1.18 to $1.24 reflects growth over 2020 at both the low and high end of the range. And with that, we would be happy to take your questions.
David Bujnicki, Senior VP, Investor Relations and Strategy
Before we start the Q&A, I just want to let you know that the line-up for people in the queue is very deep. So, in order to make this efficient, again, just a reminder that you may ask a question and then have one follow-up, and then you are more than welcome to rejoin the queue, so we could get through this pretty efficiently. With that, you could take the first caller.
Operator, Operator
Okay. Our first question is from Rich Hill from Morgan Stanley. Go ahead.
Rich Hill, Analyst
Hey, good morning, guys. Hey, Conor, I just wanted to talk through the guide a little bit. My perception is that you guys have a history of being conservative, and when I look at the guide, the high end of the range looks like it’s just an annualization of 4Q. The low end of the range looks fairly low. Can you just maybe walk through that and how we are supposed to think about it? And again, I recognize given the uncertainty in the world, why you would want to be conservative, so I am not calling you out for it. I am just trying to understand a little bit better and where the risk might be to the upside or the downside?
Conor Flynn, CEO
Sure, Rich. Nice to hear from you. Look, we have never given guidance in a pandemic before. We think it was important to give guidance really to showcase that we have a good handle on the portfolio and the cash flows. Clearly, there is a lot of unknown that still can exist in the coming year. We’re not out of the woods yet with the pandemic. If you think about the variants that are out there, the virus, if you think about the distribution of the vaccine, there is a lot of things that could really dramatically impact some of the returns that we are anticipating. And we thought that it’s important to showcase growth and showcase that we believe that we are – that we have a defensive nature of portfolio that is now sort of up and running, even in the midst of the pandemic. But clearly, there is a lot of unknown that could impact the earnings potential for 2021.
Glenn Cohen, CFO
It’s Glenn. Let me just add a couple of things that may help you also. The credit loss levels, obviously, are pretty wide-ranging, and that’s a big part of what’s in those guidance numbers. So we had, as I mentioned, $106 million of credit loss between abatements, reserves, and straight-line reserves. We are still – we have baked into this guidance, still another $80 million to $100 million for this year. So that’s a component of what’s in there. The other thing that I want to bring out also is we do have less interest capitalization because of the projects that have come online. And that interest capitalization will be $8 million to $10 million less for this year. Similarly, we are capping less construction payroll of another $4 million to $6 million. So take those into account the capitalization differences when you are looking at the guidance as well.
Rich Hill, Analyst
Got it. That’s helpful. I am going to not ask any more questions because I don’t want Bujnicki tracking me down and telling me I asked too many. So, thanks, guys.
Operator, Operator
Our next question is from Kate from Goldman Sachs. Please go ahead.
Unidentified Analyst, Analyst
Hi, good morning. Maybe just in terms of the deferrals that you did grant in 2020 to the tenants that needed them, could you go through the expected timing for receipt of those, and to the extent that any have been paid or should have been paid by now, how that outlook for receiving the deferrals on time is going?
Glenn Cohen, CFO
Yes. So the deferrals that we have done, most of the deferrals will get are expected to get collected over the next 18-month period, so a good portion during 2021 and some into 2022. Of the deferrals that we have billed mostly in the fourth quarter, over 90% of the ones that we have billed have actually been collected. So, so far, it’s going pretty well.
Unidentified Analyst, Analyst
Okay. And then in terms of the sectors that look like they are weighing down the rent collection for services, which isn’t surprising, but there are also collection rates under 100% for other categories, including essential ones. So, I was just wondering if you could go through, does it seem like rent collections are plateauing or what’s your outlook for when the essential tenants and those non-essential ones but not directly impacted by capacity constraints could improve to 100%?
Glenn Cohen, CFO
Well, Kate, we have never had 100%. I think that’s a starting point, right? For the most part, on a historic basis, normally, we would collect around 95% during a given month. And then over the following months, we would collect the other 3% to 4%, and then you have your credit loss that comes into play. When you look at the collections, again, collections were 92% for the quarter. So definitely starting – we are seeing improvement. 91% collected so far for January. We don’t think that we have hit the peak yet. We still have more to do. Again, we are still being impacted on the closures that have occurred certainly out on the West Coast hitting restaurants and a lot of the nonessentials, but collections are continuing to improve.
Unidentified Analyst, Analyst
Okay. Thank you.
Operator, Operator
Our next question is from Samir Khanal from Evercore. Go ahead.
Samir Khanal, Analyst
Hi, good morning, Conor. I was just trying to get a better feel for how the recovery plays out over the next several quarters and sort of the pace of that recovery. If we are assuming occupancy troughs, let’s say, in the second quarter or the third quarter, how quickly do you think you can get back to sort of pre-pandemic levels, right, let’s say, an occupancy of mid-90s given the amount of leasing and the robust demand you have been talking about?
Conor Flynn, CEO
Yes, it’s a good question. I think a lot of it has to do with – I think the demand is going to be there. First and foremost, we are seeing it now come back on the small shop side. Because originally, the box demand or the anchor demand never really subsided. Clearly, it was heavily weighted towards essential retailers through the past few quarters, and now you are starting to see some of the nonessentials come back for any type of well-located anchor box that’s available. So, I would anticipate that to come back first. But now what’s interesting is the small shops are starting to come back, and we are seeing it a pretty wide spread of demand sources. I will have Dave Jamieson comment on some of the small shop demand that he is seeing.
David Jamieson, COO
Yes. No, I appreciate it. I mean right now, we are seeing it on the restaurant and the service side is actually coming back in a surprising way and in a positive way. What you are seeing is operators, entrepreneurs, restaurateurs, seeing the vacancy within high-quality portfolios in the near term as a ways in which to either expand their existing operation or get into markets that they otherwise were challenged to do. We’ll start to see that pick up. When you look at the velocity in Q4 2020, I thought that was a really encouraging sign from a lease-up standpoint, and what we’re currently seeing as we move through Q1 is that, that momentum is continuing to build. The vaccine has provided some endpoint, and at some point, and hopefully, in the not too distant future, we will see this pandemic somewhat behind us. So people are starting to prepare. Investors are starting to prepare for what that will look like and how do they set up their business accordingly. Again, on the nonessential side, we say nonessential, but when you think of the performance, especially with the investment-grade retailers and how well they have done from a public standpoint through this pandemic from a stock share price, they are really on sound footing and see this opportunity to expand market share and again, enter into higher-quality portfolios knowing that, that window will only be open for a limited time. So we are cautiously optimistic about the future here.
Samir Khanal, Analyst
And then I guess as a follow-up, has your view changed on NOI growth, let’s say, not for ‘21, not so much focused on ‘21, but let’s say sort of this peak to trough end of ‘19 to ‘21/22. I mean has your view – do you feel like you can do better than down 10%? I mean, how are your views today? How do they compare to, let’s say, end of 2Q last year and even into 3Q last year?
Conor Flynn, CEO
Well, clearly, the demand side has changed since we talked about it in Q2, Q3 of last year. Still, I think there are several variables there on the NOI, because I think the biggest variable is on the most impacted categories and how they’re going to weather through these next few quarters: entertainment, restaurants, fitness services. Those are really where there is a pretty wide spread of scenarios that could play out. We feel good about pent-up demand. We do feel like there is going to be a lot of revenge shopping and revenge spending. I can’t tell you how many conversations I’ve had about what restaurants people are going to go to, or what fitness club they are going to go back to, or what trips they are going to take. If we think the vaccine plays out and there isn’t a variant of the virus that doesn’t have another wave of infections, we clearly have some visibility now that there are some green shoots on the horizon that we are cautiously optimistic about.
Operator, Operator
Our next question is from Haendel St. Juste from Mizuho. Go ahead.
Haendel St. Juste, Analyst
Thank you, operator. Hey, good morning out there, guys. Question on redevelopment, the pipeline here is about $220 million at year end, including the new Pentagon center, that’s up pretty meaningfully from last quarter. I guess, are we back in the redevelopment game here? How do you foresee the near-term prospects for the pipeline, what type of yield, how large, and will that be funded with disposition proceeds or perhaps some of the Albertsons stock now that the window is open for some of that?
Conor Flynn, CEO
Sure. I can start, and Dave can give some more color on it. Look, we have seen in our supplemental that we have added the entitlements that we have achieved over the past 5 years. We believe there is a lot of value to be created on our asset base just on the entitlement initiative. Then what we look through is the decision tree of how to activate those entitlements. What we have done over the past 5 years is we have sold some entitlements, we have ground leased some entitlements, and we have joint ventured some entitlements to unlock that value. Depending on our cost of capital, depending on supply and demand in that trade area, we really look at the spread to our ROI, what the exit cap would be and trying to have a 200 basis point spread there between what we believe we can deliver the project at and what we could sell the project at. Pentagon, obviously, is the one where we feel like there is a pretty unique set of circumstances there. If you haven’t seen the Amazon rendering of the Helix and what they are doing right across the street from our Pentagon Center, it’s going to be pretty dramatic. With the success of the Witmer and some of the cap rates that have traded in that trade area, we feel very comfortable with adding that to the pipeline in a joint venture. It’s with CPP. We have very solid multifamily experts that helped us with the first tower that’s also helping on the second tower. We feel like that’s the right project to add to the pipeline. But going forward, we are going to be very selective. We do like the initiative of ground leasing a lot of our entitlements. We feel like that’s the way to not have a significant amount of capital tied up in these larger-scale projects. But we love the smaller-scale projects that are double-digit type returns, where you are adding an out parcel or a pad with a drive-thru or expanding an existing tenant. Those are ones that typically run in the range of $75 million to $100 million a year and have that double-digit type return. So, you will see that being consistent, but we will be mindful of how much we add to the pipeline going forward and be very selective on that.
Haendel St. Juste, Analyst
Okay. And then any comment you could make on Albertsons? I understand the window opened early this year for a portion of potentially how you sell from those shares. So curious, have you – can you comment and would that be to fund some redevelopment, debt pay-down, some of the mezz investments you are looking at, curious what the potential use would be? Thanks.
Glenn Cohen, CFO
Hi, Haendel, it’s Glenn. As I mentioned in my prepared remarks, the guidance that we have has no Albertsons monetization in 2021 in it. Again, we will monitor the investment obviously very closely and it’s really geared towards debt reduction more than anything else. That’s what we have earmarked those proceeds over time for. Again, cash is fungible, but again, we think of it more in terms of an ability for further debt reduction as we go forward.
Haendel St. Juste, Analyst
Got it. Got it. Thank you, guys.
Operator, Operator
Our next question is from Derek Johnston from Deutsche Bank. Go ahead.
Derek Johnston, Analyst
Hi, everybody. Thank you. So, omni-channel and BOPUS trends have been very encouraging, and you actually pointed them out pretty well in the investor presentation. What’s the driver besides COVID? Is it that fulfillment is easier at the local store level? Are retailers using their store fleet now in lieu of possibly more expensive industrial or distribution facilities? So, as you talk to your retailer management teams, what are the key drivers that they speak to with increase in this trend?
Conor Flynn, CEO
Yes, you are exactly right. I think when we have open dialogue with our retailers, they are looking at their real estate differently, and they’re seeing their store base as a distribution fulfillment point that can solve for the last mile. The last mile is something that’s been tried to be cracked for a number of years. With BOPUS and curbside pickup, you have to have that amenity available to your customers to offer a suite of services. What’s being unlocked is the store is being optimized to service that last mile in more ways than one. You are seeing the changes being made primarily from the best-in-class retailers as they set the blueprint for others to follow. It is very clear when you look at who are the most successful retailers that the store is being utilized as that last mile fulfillment point. I wouldn’t be surprised if you start to see more incentives for customers to drive to the store because the margin is higher there and they can take advantage of that by incentivizing them with coupons that really can get people to take control over when they want the goods and how they want the goods, and it does drive up margin for the retailer. They are looking at it very differently.
Derek Johnston, Analyst
Okay, thank you. No, that’s helpful. Just a very quick follow-up, clearly, a bright spot has been leasing. Where would you say your leasing pipeline is now versus pre-COVID levels? Thanks, guys.
Ross Cooper, President and Chief Investment Officer
Yes. No, our leasing pipeline is – I mean, as I mentioned earlier, related to Q4 2020 performance. And when you compare it year-over-year, it basically is at that level of pre-pandemic. When you look into ‘21, the ‘21 Q1 is usually historically a little bit lighter post-holiday and you tend to see an increase in vacancies, which is normal. But what we have been seeing is extremely encouraging. So again, as people are seeing this opportunity of displacement, new vacancies coming to market, they want to take advantage of it knowing that, that window will close shortly thereafter.
Operator, Operator
Our next question is from Mike Mueller from JPMorgan. Go ahead.
Mike Mueller, Analyst
Yes, hi. A quick question, I guess, on the Rite Aid warehouse acquisitions. So how should we think about that and what’s on the table now to buy? How wide is the scope for what you put capital into?
Ross Cooper, President and Chief Investment Officer
Sure, Mike. I am happy to answer that. When you look at the Rite Aid transaction, I would just point to the history of our plus business and the fact that we have taken advantage of sale-leaseback opportunities many times in the past. We had a very successful transaction with Winn-Dixie, where we acquired 5 of their freestanding locations and those transactions, in particular, were very strong with attractive returns on cost. For the Rite Aid transaction, we were in constant communication with our retailers, particularly those that are real estate-rich, helping them provide, I would say, solutions for some of their liquidity needs or desires. This investment was really just an opportunistic investment in a moment in time. We look at the cap rate here; it’s substantially higher than the other distribution centers that we are seeing trading in the state of California. Lastly, I would say that we are holding it in our TRS, which provides us sort of maximum flexibility in terms of our hold period in our exit strategy. It’s not suggesting that this will be a wide-ranging opportunity, but selectively, we do like to take advantage of opportunities when they present themselves. So it does give us a good flexible opportunity to act.
Mike Mueller, Analyst
Got it. So it sounds like we should be thinking about this as some sort of sale-leaseback transaction as opposed to an industrial transaction where you are heading – carving the path out now and going to the retailers and trying to take down some of the industrial assets. Is that fair?
Ross Cooper, President and Chief Investment Officer
Yes, exactly. There is zero landlord obligation here. It is a sale-leaseback that they have leased for an extended period of time. We don’t anticipate that there will be any sort of operational involvement in those locations. This was really just an opportunistic investment at a point in time.
Mike Mueller, Analyst
Got it. Thank you.
Operator, Operator
Our next question is from Greg McGinniss from Scotiabank. Go ahead.
Greg McGinniss, Analyst
Hey, good morning. So it was nice to see that the new leasing volume was up compared to last year, but it looked like the releasing volume was down compared to the 2019 average. Just curious what the drivers of that were and how does the pace of 2021 renewals compare to the historical average?
David Jamieson, COO
Yes, thanks. This is Dave. It’s a great question. On the re-leasings, the impact was for those tenants that vacated. So that would drive down the average a little bit as a result of the pandemic. As we look forward into 2021, it’s still early. We are only in the beginning of February, but we are continuing to see some good momentum both from options being exercised and renewals. Importantly, the rent per square foot for ‘21 is the lowest relative to the coming years. When we see the mark-to-market opportunity on those, there is plenty of room to run on the spread side, so that should give us some additional lift as we secure the renewals of the tenancy and/or they exercise options as we go forward.
Greg McGinniss, Analyst
Okay, thank you. And just one more for me, maybe more modeling related, but the potentially uncollectible rent adjustment in Q4 was – appeared to be a $3 million positive. Does this reflect primarily the cash basis tenants paying that rent or how should we be interpreting that number?
Kathleen Thayer, Analyst
Hey, Greg, it’s Kathleen. I will help you out there. So if you look at the page, you really almost need to take the three line items that are there together. So rent abatement, cash basis tenant adjustments, and then also that potentially rent income adjustment together to come up with what the total P&L impact is. The reason for that, the opposite signs or the income sign in the adjustment line is really primarily due to the way that we are presenting the rent abatements. On tenants that we are looking at the reserve and thinking there is a potential for future rent abatement, we would take a reserve on that, a general reserve. When the actual abatement does occur, you will see it come through our rent abatement line. But that reserve that we have put up previously is flipping in that line with the uncollectible adjustments. So, really, it’s overall the three lines together.
Greg McGinniss, Analyst
So it’s not cash basis tenants paying back rent then, it’s just reflecting the timing of the abatements?
Kathleen Thayer, Analyst
Exactly. The timing of the reserve was the abatement actually happening, yes.
Greg McGinniss, Analyst
Okay, great. Thanks so much.
Operator, Operator
Our next question is from Michael Bilerman from Citi. Go ahead.
Michael Bilerman, Analyst
Hey, good morning. Conor, you talked about the occupancy and lease spread likely widening before it starts to narrow again. Can you talk a little bit about the cadence that you expect throughout the year between leased and occupied space?
Conor Flynn, CEO
Sure, happy to. And Dave can comment as well. What we are seeing is the demand continuing, as David mentioned earlier. The anchor side of it never really ebbed and flowed; it was pretty consistent through the pandemic, as most of our essential retailers saw a lot of market share up for grabs and are improving their portfolio by locating in high-quality assets that weren’t typically available to them before. I do think that the big change that we have experienced is on the small shop side. That’s what’s really going to continue to improve the spread between physical and economic occupancy as we go through the year. Historically, we were noted Glenn, probably around 275 basis points wide between those two. I wouldn’t be surprised if we eclipse that and hit 300, just because there is a lot of pent-up demand, a lot of market share up for grabs. When you look at how retailers are thinking about this, the deals they are signing today are really more like 6 to 12 months out before they open. They feel like now is the time to grab market share so that when the reopening occurs, they are in the best position possible to soak up that market share. We feel with the transformed portfolio, we are in really good shape to have that spread widen out to potentially its all-time high.
Glenn Cohen, CFO
Yes. And then just to give you a little – I would say if you want just a little perspective. At the end of the third quarter, the spread was 150 basis points. We ended the year at 190 basis points. On a pro forma basis, it hasn’t improved and across the board, I think we would continue to see that margin improve.
Michael Bilerman, Analyst
Right. Glenn, just sticking with you as a follow-up and it’s relating to the guidance. I think you acknowledged it’s wider and you sort of called out some impacts on questions. Just given the amount of impacts that occurred in 2010 in 4Q and the likely that there are going to be significant impacts during 2021 relative to those numbers in 2020. Can you provide just a very detailed almost category line by line sort of ranges, especially on the NOI side given all the abatements and deferrals and bad debt? I know there’s a lot of uncertainty, but you did provide a bottom line number.
Glenn Cohen, CFO
Again, I tried to give you a little bit of flavor on certainly what’s happening in the reserve world. As I mentioned, the high end of our range is based on the fourth quarter annualization. Really looking at the credit loss, where it could be, obviously, the high end of the range represents a continuation of the reserves of the $20 million reserve, particularly in the fourth quarter. The low end is really $100 million. The timing and width of the spread between the lease and the occupancy just makes it a little bit difficult from that standpoint. The reality is we haven’t provided much difference than we have in the past in terms of the guidance where we have here. So net neutral, but we’ll see what we could do in terms of breaking it down further.
Michael Bilerman, Analyst
We haven’t been in a pandemic before, right? So I think in those times when things are much more stable, there’s just so many one-time and impacts, and some of them are buried in different allied items that carries went through, right? So I think it’s just having that income state presentation that you used to have way back wins of those line items and ranges, I think would be very helpful for the analysts and the investor community.
David Bujnicki, Senior VP, Investor Relations and Strategy
Yes. Michael, it’s Dave Bujnicki. Also in terms of the NOI, as Glenn mentioned, I mean, really, the high end of our range is based on the fourth quarter annualization. The credit loss, where it could be, obviously, the high end of the range represents a continuation of the reserves of the $20 million reserve, particularly in the fourth quarter, and the low end is really $100 million. We’ll see what we can do in terms of breaking it down further.
Michael Bilerman, Analyst
We totally agree. And I want to – it is a positive to have the bottom line is just trying to get the details and who knows that there are mandated closures in your forward numbers or not at the low end, and just trying to get some of that detail around it would be helpful. Thank you.
Operator, Operator
Our next question is from Alexander Goldfarb from Piper Sandler. Go ahead.
Alexander Goldfarb, Analyst
Hey, good morning. So maybe I’ll just take that just from a bigger picture active. Conor, now that you guys are – were in February; hard to believe that we are almost a year into this. You talked a lot about improvement, especially restaurants, entrepreneurs. So as we look at it, you have a 92% rent collections. You have deferrals at less than 2% in the fourth quarter. That’s about, always scary to do math on a public call, but it sounds like about 6% remaining. How do you feel about that 6% remaining credit? Do you feel like, basically, let’s call it, half of those folks will pay and be good? The other half to 3% will go under? Or do you feel – like where do you feel – because ultimately, that’s the real question that we’re all getting at is you’re sitting here; we know there will be residuals, but it would also seem like right now, you have a pretty good handle on which tenants are going to make it and which tenants you have your guys ready to lock the store?
Conor Flynn, CEO
Yes. It’s a good question, Alex. And I think it’s one that changes almost weekly. If you look at what happened with AMC that was pretty remarkable to see the stock run-up and have them take advantage of it. We have to go tenant by tenant, which we can do off-line. But a lot of it comes down to the categories that were most impacted that are still closed or have significant capacity constraints. How quickly can they get reopened? How quickly can they come back to full capacity? Those are all questions that are really hard to answer because it all depends on things that are outside of our control. When you look at how we’ve approached it, our mentality is, if a retailer has kept their lights on through this pandemic to this point, it’s our responsibility to try and help them make it through this last phase.
Alexander Goldfarb, Analyst
But I mean – so basically, Conor, the 6% outstanding, are all those people’s lights on or half of their lights are off? Just a big picture, you must have some big picture views on that 6% remaining.
David Jamieson, COO
Yes. I can add in a little bit here, Alex, man, this is Dave. It does vary, as Conor mentioned, but it’s not to say that, in terms of uncollectible, the tenants themselves are dark or they vacated; we could be working out a deal where we cut a deferment early on in the pandemic and had their collection start date in January, but say they’re on the West Coast and they had to go through a second closing, which impacted their business more than originally expected. We probably work with them on extending out that deferment start date, and that could be in process now and just not yet papered. It’s not uncommon in some of these situations. While in others, we are working out what would make a reasonable agreement between both parties where we get some additional flexibility within their existing lease to reposition and redevelop parts of the center, and we are still negotiating that. So I wouldn’t by any means take that 6% and assume that they are dark or they vacated.
Alexander Goldfarb, Analyst
Okay. And then the second question is, SPACs or all the rage; you guys obviously have success with the plus business. So are you – how are your views of raising a SPAC similar to what Simon is doing? Is that something where you would see positive because you could raise outside capital, therefore, free up Kimco capital, or that’s not something that you’re really actively pursuing?
Conor Flynn, CEO
So Alex, it’s a good question. There’s a crazy amount of SPACs every day. If you remember back in June, which seems like an eternity ago, we did do a press release that we were exploring an investment vehicle. Then you can extrapolate from there. What we elected to do was really focus on the core business. We felt like there was a lot of blocking and tackling that we needed to focus our time and effort on. When you look at what’s going to drive earnings growth, what’s going to drive outperformance for Kimco and our shareholders, we believed it was focusing on the core business and then continuing to look for opportunities, focusing on retailers that are real estate rich, looking to take advantage of a dislocation in our sector because our balance sheet strength, because of our liquidity position, and then provide that upside to our shareholders versus a separate entity.
Alexander Goldfarb, Analyst
Okay. Thanks, Conor.
Operator, Operator
Our next question is from Craig Schmidt from Bank of America. Go ahead.
Craig Schmidt, Analyst
Thank you. On previous calls, you’ve mentioned having over 10 grocer opportunity that were currently in negotiation. Thanks for the mention of Amazon Fresh. I wonder if you could update us where those other opportunities stand?
David Jamieson, COO
Sure, Craig, it’s Dave. We executed three over the quarter in Q4, and the balance of the opportunities are in various forms of discussion. It could be early LOI stage to negotiating a lease. That population does vary as the negotiations progress; some fall out, some new opportunities come on. Our regional teams are hyper-focused on exploring every opportunity with grocers at all of our locations, either backfilling existing grocery or conversion of non-grocery to grocery. We’re encouraged by the relationships we have, and we see this as a long-term goal to convert what we currently have today into grocery.
Craig Schmidt, Analyst
Great. And then just looking at Boulevard, I see that it’s 88%. Do you know what percent is open? And what is the scheduling of those openings? And then just finally, how are retailers looking at new projects versus existing projects regarding leasing?
David Jamieson, COO
Sure, the Boulevard at Shoprite opened in October 2020, and they had an incredible opening; it was actually the biggest in their fleet’s history. That was a great first sign of what we see as the long-term success of the Boulevard. The balance of the junior box tenants are scheduled to open in the second half of this year going in summer and then into the fall of ‘21. That will be complemented by the small shops on the first floor that will go through ‘21 into ‘22 as well. As it relates to demand between new projects and existing, we’ve been encouraged by the activity we’ve seen both Adena and Boulevard through – as we’re coming through the pandemic and leasing starts to accelerate. The quality of real estate and the quality of the projects, unfortunately, they speak for themselves and drive the demand.
Operator, Operator
Our next question is from Ki Bin Kim from Truist. Go ahead.
Ki Bin Kim, Analyst
Thanks and good morning. So you guys talked about some of the cadence that we should expect in 2021, but I was just curious a little more with the first quarter. What kind of impact do you think you’ll see from kind of seasonal bankruptcies?
Conor Flynn, CEO
So far, we haven’t experienced a whole lot of bankruptcies this quarter. Ray can comment on the detail. The last bankruptcy that was of any sort of significance was back in I think it was actually…
Raymond Edwards, Analyst
Middle of November.
Conor Flynn, CEO
Yes, it was around November.
Ki Bin Kim, Analyst
Okay. And I know this is not going to be a mutually exclusive situation. But I was just curious if there are two competing spaces. I’m sure you have some high-quality centers with high rent and you have some others that are maybe lower quality with lower rent. Theoretically speaking, is the retailer more inclined to go after your higher quality, higher rent location or the lower quality ones? And I know those aren’t mutually exclusive. Each week seller has a different target zone, but also just curious, just high level.
Glenn Cohen, CFO
Yes. There are so many variables, I guess, factored into a retailer’s decision to take any particular space. Sometimes there is a retailer that has significant demand in one of their existing locations or they are looking for a pressure valve to release some of that demand in one store. They might look to take a smaller format in our center if that is available. Some people look at book-ending a trade area, while others look to saturate it with multiple stores. It really just depends on where they are in terms of their fleet strategy and how it complements how they view trade areas and grabbing market share. With the pandemic, what it’s really done is accelerate, I think, a lot of the discussions that have been ongoing, whether it’s curbside, BOPUS, distribution, last mile. Those conversations are ongoing and ever-changing within the retailer world. It’s important for us to stay close to them.
Ki Bin Kim, Analyst
Got it.
Conor Flynn, CEO
I would say that retailers also are very focused on the curb appeal and the accessibility as well as the convenience factor. The four-wall EBITDA is usually very profitable for our major retailers. They’re really focused on making sure they get the right real estate. They have been taking advantage of some market share that’s up for grabs, where some of the weaker players are not necessarily defending their flank.
David Jamieson, COO
Yes. And I would actually – sorry, just add one more thing to Conor’s point. Retailers are also looking at well-capital landlords into this idea of curb appeal. We’ve invested a tremendous amount, making sure that our centers show extremely well and are the highest class in any given market, which we represent. But it’s really long-term, making sure that the landlord themselves can continue to make those investments to ensure it stays as appealing as possible as to service their customers and, which are the same as our customers. That does factor in as well.
Operator, Operator
Our next question is from Juan Sanabria from BMO Capital. Go ahead.
Juan Sanabria, Analyst
Thank you and excellent pronunciation, operator. Just curious if you guys could give a little bit more flavor with regards to AFFO or FAD relative to your NAREIT FFO guidance? And as part of that, how to think about taxable income given your comments on how you’re, at least, as the kind of the worst case, correct me if I’m wrong, for the dividend going forward, it’s readjusted?
Glenn Cohen, CFO
Well, we’re targeting the dividend, at least, to be really right at around taxable income. For the most part, it should bring us to a level where our AFFO would probably be in the mid-70s as a payout ratio. So that’s kind of where the target is. Again, you have the difference of the capital that’s spent on TIs and leasing commissions and CapEx, obviously, that are the reconciliation between FFO and the AFFO, but that’s kind of where we see it. Taxable income, we continue to look for all sorts of tax strategies to manage it and keep it in check. But again, I think you can get a better flavor once we meet with our board and we declare our first-quarter dividend.
Juan Sanabria, Analyst
Great, thank you. That’s it for me.
Operator, Operator
Our next question is from Linda Tsai from Jefferies. Go ahead.
Linda Tsai, Analyst
Hi. In terms of staying opportunistic during this time of disruption, are there specific markets where you’re seeing better opportunities, like maybe regions where lockdown restrictions were stricter or is it not so black and white?
David Jamieson, COO
Yes. It really hasn’t been geographic in nature. I think it’s very specific to individual circumstances. We have started to see some additional opportunity from owners that have specific capital needs for their assets, whether it’s repositionings or debt maturities. I wouldn’t necessarily break it down in terms of a trend in terms of location, geographics, or property type. It is sort of a specific circumstance of that individual owner or investor.
Linda Tsai, Analyst
Thanks. And then I think earlier, you guys said that you are seeing more demand for space from fitness operators. Is this from existing ones or new entrants?
Conor Flynn, CEO
We’re seeing demand from a lot of value-oriented fitness operators, the Planets, the Crunches of the World, where I think they see the opportunity here again to enter markets or centers that otherwise weren’t previously available. I’m sure we’ll see variance of boutique fitness that emerges; it always is the case. The at-home, the online app trends that have been developed through the pandemic are sure as forms of that will transfer over into brick-and-mortar and the four walls.
Linda Tsai, Analyst
Thanks.
Operator, Operator
Our next question is from Floris Van Dijkum from Compass Point. Go ahead.
Floris Van Dijkum, Analyst
Thank you, Van Dijkum. Thanks for taking my question. Conor, you guys had some interesting comments about your land value and about obviously, you have indicated you’re looking to do more grocery anchor deals, obviously, grocery anchor adding to your existing centers but also maybe looking at buying grocery-anchored centers. How do you think about the relative value of grocery-anchored versus lifestyle centers? No one seems to talk about lifestyle centers these days? Also maybe talk about the opportunity that you have within your ground rent portfolio. Is that being undervalued? How do you look at all those components?
Conor Flynn, CEO
It’s a good question, Floris. When we see the grocery opportunity, it’s, first and foremost, being led by the demand we’re seeing from all the different grocery categories that Dave outlined. It’s interesting. There’s a big cap rate difference when you have a grocery anchor versus when you don’t. We have a lot of products that lend itself to just leasing up boxes to grocery stores, which, in my opinion, is the best risk-adjusted return we can find today. That’s where our focus is. We have these deep relationships with these retailers that are looking to expand. I think grocery-anchored centers are more appealing compared to lifestyle centers that were heavily loaded with restaurants and entertainment, which are volatile and non-defensive. There are opportunities there if you can underwrite them correctly, but it’s not where we are focused. We can underwrite everything just to get a sense of where we think we can add value.
Floris Van Dijkum, Analyst
Is there any sort of can you quantify what the future potential of something like ground rents under apartment complexes could be?
Conor Flynn, CEO
We did start to disclose the entitlements on the supplemental, and you can start to extrapolate valuations there on a per unit basis, and we can help you on some of the ground lease deals that we’ve done so far that we feel like is a good barometer for the future.
Floris Van Dijkum, Analyst
Thanks, guys. Appreciate it.
Operator, Operator
Our next question is from Chris Lucas from Capital One. Go ahead.
Chris Lucas, Analyst
Hi, good morning, guys. I just wanted to go back to the dividend policy, if I could. Normally, at this point, you guys would have declared a first-quarter dividend. Just kind of curious as to whether you’re going to be paying quarterly dividends. Should we interpret much in sort of the first dividend announcement as it relates to future run rate? Or is the focus going to really be on getting to sort of year-end and just paying out the taxable minimum? So it could be a little lumpy.
Glenn Cohen, CFO
Chris, no, we’re planning to do quarterly dividends as we always have, and we didn’t even – we did quarterly dividends even during 2020. We’ll meet with our Board later this month and declare the dividend for the first quarter, and it will be paid in the first quarter. We do plan to have, as I mentioned, a more normalized dividend level that will reflect closer to taxable income. You’ll see that normalized level and something that hopefully over time we should be able to grow from.
David Bujnicki, Senior VP, Investor Relations and Strategy
Yes, Chris, the dialogue with the Board was focused on, really, since we’re in the midst of the pandemic still, why don’t we see how we collect; what the rent is that’s coming through the door for the first quarter before we announce a dividend. That’s just logical. We want to understand what we have before we elect to the dividend amount.
Operator, Operator
Our next question is from Paulina Rojas from Green Street. Go ahead.
Paulina Rojas, Analyst
Good morning. Could you please provide an update on the performance of your tenant assistance program, particularly as it relates to the last round of PPP loans? Are your tenants taking advantage of these resources in a meaningful way, in your opinion? Also, more broadly speaking, what is your assessment of the health of your local small tenants? Are you worried? Not so much?
Conor Flynn, CEO
We have seen good engagement in the tenant assistance program, really, the partners that we align with our best-in-class in terms of navigating the PPP funding round. The details are – we have a couple of hundred already engaged with that program. I think it's around $300 million. It’s been so far, so good, but we are waiting to see how much funding they’re able to process. At this point in the cycle, there are people that need the access to capital. It was our mission to ensure we give them the fastest path possible to get access to that capital. As for our small shops, we’re actively speaking to each of them on a regular basis. Some have done fairly well through this, while others continue to struggle. That’s no surprise, but the small shops are the lifeblood that we want to continue to hold close to ensure we provide them the resources to get through the pandemic and thrive on the back end.
Paulina Rojas, Analyst
Thank you.
Operator, Operator
This concludes our question-and-answer session. I would now like to turn the conference back over to David Bujnicki for closing remarks.
David Bujnicki, Senior VP, Investor Relations and Strategy
Just want to thank everybody that participated in our call today. Please continue to be safe, and I wish you the best during this earnings season. Thanks so much, and take care.
Operator, Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.