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Kimco Realty Corp (KIM) Q1 2019 Earnings Call Transcript

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Kimco Realty Corp  (NYSE: KIM)
Q1 2019 Earnings Call
May. 02, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to Kimco's First Quarter 2019 Earnings Conference Call and Webcast. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Mr. David Bujinicki, Senior Vice President of Investor Relations and strategy. Please go ahead.

David F. Bujnicki -- Senior Vice President of Investor Relations and strategy

Good morning, and thank you for joining Kimco's first quarter 2019 earnings call. Joining me on the call are Conor Flynn, our Chief Executive Officer; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, Kimco's CFO; Dave Jamison, our Chief Operating Officer, as well as other members of our executive team that are present and 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's important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to the company's SEC filings that address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in the Investor Relations website.

And with that I am turning the call over to Conor.

Conor C. Flynn -- Chief Executive Officer

Thanks Dave, and good morning everyone. Today, I'll briefly discuss the current shopping center environment and how Kimco's strategy is designed to meet today's challenges and create a growth platform going forward. I will then touch on some of our Q1 highlights and describe the remarkable progress we're making on our Signature Series assets. Ross will follow with a review of our Q1 transaction activity and then discuss the current transaction market and our investment outlook. Glenn will close with a discussion of some additional quarterly accomplishments and provide our updated guidance for the year ahead.

In the retail real estate's space, we anticipate store optimization plans to continue, as under-performing locations will likely not survive the new world order of retail Darwinism.

At the same time, however, we see strong demand for new stores, with particular strength in off price beauty, fitness, restaurants, medical, and services. We track store openings across the country, and by our account, the number of 2019 openings are over 5500 more than double the widely reported numbers in the media. We also anticipate that the buy- online pick-up-in store phenomenon will grow at a significant rate placing more value on physical locations that can adapt and drive even more profitability. The ICSC halo effect report is clear evidence of how important physical retail is to e-commerce growth. According to the report, opening a physical store has shown a significantly increased web traffic for the retailer in that market and conversely web traffic drops off when retailers close stores.

We have positioned ourselves to take advantage of, and withstand the vicissitudes of the retail real estate environment. Our assets are concentrated in high-quality markets with high barriers to entry and anchored by profitable high-volume stores. These are the locations where retailers want to be, and will invest heavily to integrate e-commerce with their physical footprint. In talking to our retailer partners, we have heard consistently that there is no lack of available retail space on the market but that there is a lack of high-quality retail space. Our quality locations, below market leases and the diversity of our tenant base give us tremendous flexibility and staying power to navigate the current environment. The new age of retail is evolving rapidly but we're focused on staying ahead of the curve in finding the right real estate to unlock and batted growth.

Now to the highlights. We are off to a good start this year with our portfolio producing stronger than anticipated growth. Our first quarter same-site NOI increased 3.7% and for the first time in over 10 years, our occupancy climbed in Q1 by 20 basis points. Higher retention and higher leasing volumes drove the out performance.

New deals with Target, Old Navy, ULTA, Burlington, Ross, Five Below and many others illustrate that our portfolio caters to the successful and growing concepts in the retail world today. Our team executed our disposition plan in 2017 and 2018 to address the lowest tranche of the portfolio. Since the drag from the portfolio has been removed, our quality and our growth are starting to shine through. Our priority this year is focused on completing and opening the balance of our Signature Series portfolio. We are reaching the final stages of a multiyear investment program that will start to generate significant cash flow to the portfolio.

We are on track to deliver $16 million to $18 million of incremental NOI this year that will drive our EBITDA and FFO, increase our free cash flow and strengthen our dividend coverage ratio. Some highlights from Q1 include the opening of Lowe's at Mill Station, T.J. Maxx and Hobby Lobby at Dania Pointe and the commencement (ph) of the residential ground lease at Dania Pointe phase II. In addition to this, we are also on schedule to deliver this summer to Witmer, a 440-unit residential tower at our Pentagon Center which is across the street for Amazon's planned HQ 2 in Arlington, Virginia.

As we keep an eye toward the future, we continue to make substantial progress with our mixed-use platform. To date, we have a total of over 4300 residential units and 550 hotel keys entitled under construction or open-and-operate. With respect to the entitlements (ph) we are creating a multi-year runway of future investment opportunities that we can activate at our discretion. Over the long term, this will change the growth profile and quality of our largest NOI contributors. Glenn will go into more detail that our balance sheet remains strong affording us both flexibility to grow and protection to withstand any bumps in the road. In the end , for us it is all about quality assets and strong leasing and as Q1 shows, the organic growth of our high-quality portfolio continues to improve.

Our team is committed to stay in the course and producing solid results. Finally I would like to thank Joe Grills, outgoing Chairman of the Executive Compensation Committee and Dick Dooley, outgoing Lead director, and Chairman of the Nominating Corporate Governance Committee, served long and devoted service to the board. In addition to their extraordinary leadership commitment to Kimco and the many contributions that they have made over the years, these two gentlemen have always conducted themselves in a thoughtful and professional manner, characterized by integrity, civility, and honesty. They have set a high and enduring standard for our board members and leave behind a lasting legacy. Ross?

Ross Cooper -- President and Chief Investment Officer

Thanks to you Conor, and good morning. The first quarter of the year went according to plan with only only a modest level of transactions taking place. Following the heavy transformation activity we undertook in 2017 and 2018 we're extremely excited about the current portfolio and the results for the quarter showcased that the improvement in quality is paying off. We sold seven assets so far this year with gross proceeds of approximately $102 million and $85 million at Kimco share. We expect the disposition volume to be similar in the second quarter with a majority of our transaction activity completed by the middle of the year. We remain confident in our range of net disposition activity of $200 million to $300 million for the year.

Two highlights for the quarter with a sale of our last fee-on shopping center asset in Missouri and a property in Palm Beach Gardens Florida. The Palm Beach Garden sale is an example of our disciplined approach to capital allocation when evaluating mixed-use redevelopment opportunities. Palm Beach Gardens was a site that was being considered for additional density and after receiving an offer from an aggressive buyer, we did a deep evaluation of either a self-development scenario joint venture or ground lease approach.

We concluded that the most accretive and best value creation proposition was an outright sale of the site. The first quarter asset sales produced a blended sub-7% average cap rate on in-place NOI driven by the sale of our Arboretum Crossing asset which had a vacant former Toys"R"Us box at the time of closing. Given the execution in Q1 and expectations for pricing on the remainder of the sales in 2019, we anticipate the blended average cap rates for the full year of sales to be in the 7. 25% to 7.75% range, an improvement over our prior expectation of 7.5% to 8%. On the acquisition's front, last quarter we announced $31 million sale leaseback transaction with Albertans to acquire the unowned grocery anchors at three of our tier-1 West Coast assets. There were no additional acquisitions completed so far this year. While we continue to evaluate opportunities to strategically and accretively enhance the existing portfolio, our main focus is internal growth with the Signature Series development and redevelopment program which is progressing at a very exciting pace.

I will now pass it off to Glenn for a deeper dive into the financial results.

Glenn Cohen -- CFO

Thanks Ross and good morning. Our execution in the first quarter of 2019 has generated increased occupancy, strong same-site NOI growth and significant progress on our development and redevelopment projects. Now before I discuss the details of our first quarter, I want to bring to your attention the change in how we report NAREIT FFO. In accordance with the NAREIT FFO definition restatement, we have elected to exclude gains and losses from land sales, marketable securities and preferred equity investment transactions. We will present prior periods to conform to the selection. Please keep in mind that these transactional items were previously excluded from FFO's adjusted and therefore has no impact on that calculation.

Now for some color on the first quarter results. NAREIT FFO was $0.38 per diluted share for the first quarter of 2019, the same level as Q1, 2018. The current quarter includes the receipt of $1 million of insurance proceeds related to our Puerto Rico portfolio that was in excess of the property basis. Last year's first quarter included $4.3 million of gain on forgiveness of debt. Both of these amounts have been excluded from FFO as adjusted. FFO as adjusted or recurring FFO was $157.4 million for the first quarter of 2019 as compared to $157.8 million for the same period last year resulting in $0.37 per diluted share for each quarter.

Our first quarter results benefited from lower interest expense of $6.3 million due to the lower debt levels while G&A expense was higher by $4.1 million primarily from lower internal leasing and legal capitalization resulting from the adoption of the new lease accounting standard Topic 842. We also had $1 million decrease in NOI which is remarkable since we lost $20 million of NOI from the $1 billion of dispositions we completed over the past 15 months. Offsetting the NOI reduction from these sales was $7.7 million organic growth from the same site pool and $3.5 million incremental contribution from our development projects.

There were also higher lease termination fees of $3.8 million and higher straight-line rental income and recapture of below-market rents during the quarter. For the rest of 2019 we don't have any additional lease termination fees in our full year guidance. And I expect that GAAP items of straight-line rent and above and below market rents to revert to more normalized levels. Our transformed operating portfolio continues to produce positive results. Pro rata occupancy increased to 96%, up 20 basis points from year end as tenant vacates were lower than anticipated. Pro rata anchor occupancy is 97.8%, up 40 basis points from year end and small shop occupancy is 90.6%, down 50 basis points from year end due to the seasonal vacates after the holiday season but up 100 basis points over the year-ago quarter.

Due to tremendous effort by our team, pro rata leasing spreads continued the strong performance with first quarter 2019 new leasing spreads increasing 17.4%. Renewals and options also grew by 7. 1% with a combined pro rata leasing spreads up overall by 8.9%. Same-site NOI growth was positive 3.7% for the first quarter of 2019 versus a comp of 2.5% last year primarily driven by increases in minimum rent contributing 320 basis points and other revenues up 80 basis points which includes 40 basis points from the (ph) previously rejected. Offsetting these increases in same-site NOI growth is modestly higher credit loss negative 10 basis points and lower operating expense recoveries negative 20 basis points.

Turning to the balance sheet. We finished the first quarter 2019 with consolidated net debt to recurring EBITDA of 5.7 times improving from the 6 times level at year end. On the look through basis including pro rata JV debt and perpetual preferred stock outstanding, the level is 7.2 times improving from the 7.5 times at year end. Our liquidity position remains very strong with over $2 billion of immediate liquidity available and only $100 million outstanding on our $2.25 billion revolving credit facility. We have no debt maturities for the balance of 2019 and only minimal debt due in 2020. Our weighted average debt maturity profile now stands at 10.2 years, one of the longest in the REIT industry. Based on the solid first quarter results, we are reaffirming our NAREIT FFO and FFO as adjusted guidance range of $1.44 to $1.48 per diluted share. In addition we are raising our full year guidance range for same-site NOI growth from 1. 5% to 2.5% to a new range of 1.75% to 2.5%.

And with that , we'd be happy to take your questions.

Conor C. Flynn -- Chief Executive Officer

Before we start the Q&A, I just want to offer a reminder that you may ask a question with a follow-up, If you have additional questions you're more than welcome to rejoin the queue. And Avi (ph), you could take our first caller.

Questions and Answers:

Operator

(Operator Instructions) The first question today is from Rich Hill with Morgan Stanley.

Rich Hill -- Morgan Stanley -- Analyst

Hey, good morning guys. Really impressive same-store NOI this quarter. So one of the things that we have noticed was CapEx was -- looks like it was meaningfully higher than it was in prior quarters and certainly prior to the four prior quarters. So I was wondering if you could maybe just give us some guidance about what drove that and how tenants are thinking about CapEx at this point as you had some pretty impressive leasing velocity?

David Jamieson -- COO

Sure, I appreciate is. This is Dave Jamieson. Our CapEx is elevated from prior quarter but it's also important to note that our rents as well have increased as it relates to the increasing cost as well as our weighted average term of our leases. So we look at this environment today. We are driving higher rents to offset that additional cost. The cost itself is really driven by the elevation of construction costs, hard cost and labor. That's a trend that we have seen throughout the course of the industry.

When you tie it all together, our net effective rent is actually improving. It improved over 5% relative to our total base rent. This quarter the net effect is -- it's heading in the right direction as we hoped. As we go forward, we continue to see the same situation occur. It's something we always have to be mindful of, but that's really what the driver has been. But again as I tie it all that back together, net effective rate continues to improve quarter-over-quarter.

Rich Hill -- Morgan Stanley -- Analyst

Got it. And so just to be clear, it sounds like most of the CapEx increases are coming from just construction cost and labor costs. It's obviously... that's a trend we've seen across other property types so I just want to make sure that I understood that correctly?

David F. Bujnicki -- Senior Vice President of Investor Relations and strategy

Yes.

Rich Hill -- Morgan Stanley -- Analyst

Okay. Great. I think that's my question and my one follow-up. Thanks guys.

Operator

The next question comes from Samir Khanal with Evercore. Please go ahead.

Samir Khanal -- Evercore -- Analyst

Good morning guys. You did three seven in the quarter for same store which is certainly strong but you kept the -- and the guidance went up by 25 basis points but you're suggesting sort of a bit of deceleration in the coming quarters. Can you walk us through, I guess the trajectory of growth over the next few quarters? What are kind of the pluses and minuses we need to think about, sort of get you back to the midpoint of guidance? Thanks

Glenn Cohen -- CFO

Samir, Hi. It's Glenn. Again, we are pleased obviously with the first quarter results where they came in, but it is still early in the year and we wanted to take and do a full assessment over the next 90 days as we look at guidance. I can tell you that we actually have stressed (ph) test our portfolio as we look at tenants that may have impact through the year. Tenants that are actually on the watch list.

And we feel very comfortable with our current guidance range and are comfortable toward the mid-to-upper end of that range. Few things to kind of keep an eye on, as we go through the quarter and through the rest of the year, really would be the timing of rent commencements and what unexpected tenant fallout could have on same-site NOI growth. So we wanted to take it slow quarter by quarter and try and produce the numbers that we think will be well appreciated by the Street.

David F. Bujnicki -- Senior Vice President of Investor Relations and strategy

Samir, I have one more follow up. It's David Bujnicki. I just want to -- also keep in mind next quarter we do have a tough comp coming up on a 3.8%.

Samir Khanal -- Evercore -- Analyst

Okay. And I guess as a follow up and along your point, Dave, can you give us a sense as to how much of a dip we could see in the second quarter before seeing a reacceleration, kind of in the second half?

Glenn Cohen -- CFO

Again, it's Glenn. We're watching it closely. You could see somewhere in that 2% range in the second quarter.

Samir Khanal -- Evercore -- Analyst

Okay, great. Thanks guys.

Operator

The next question comes from Jeremy Metz with BMO Capital. Please go ahead.

Jeremy Metz -- BMO Capital -- Analyst

Hey, good morning. Just kind of sticking with that (ph) for a little more detail on your expectations for store closings. Conor, you talked about the continuing store optimization that's going on and the expectations that it continues. So wondering what your outlook for the impact is to the portfolio? And how that compares to where we started the year?

Conor C. Flynn -- Chief Executive Officer

So far, obviously, we're early in the year, but so far so good. I mean when you look at our transformed portfolio, we get a sense that the retailers that we have had strong performing stores with us and they are reinvesting in those stores to integrate e-commerce. So we haven't really seen the fallout that we've seen in previous years. And we continue to look toward the future of what the portfolio is going to look like and the best retailers and how we can backfill with those retailers.

So when you look at our Toys"R"Us absorption there, we've been very aggressive and-- lease all 17 of the 18 boxes that we had and continue to see strong demand across the board for well-located retail real estate. And when you look out quarter by quarter, we'll continue to monitor retailers that are trying to reposition themselves for the new world of retail. But luckily ,we have the right portfolio where we have a waitlist for some of these boxes that we anticipate recapturing.

Jeremy Metz -- BMO Capital -- Analyst

All right. And second one from me, just going back to the dispositions, were those included in your initial same-store pool and your outlook and therefore did selling some of that-- the vacancy you mentioned the toys -- vacant toys box and the repositioning going on, I think down at Palm Beach, did that help at all?

Conor C. Flynn -- Chief Executive Officer

Yeah, I mean the dispositions definitely do have an impact on the same site. We have budgeted for the certain assets, so that was all within expectation. Specific to the Palm Beach Gardens site, that really wouldn't have an impact on same site. That was a site that's been held through redevelopment for several years. And our NOI was essentially zero as we were keeping certain tenants in there in anticipation of the redevelopment, so Palm Beach Garden didn't have any real impact on either same-site or the cap rate range for this quarter.

Jeremy Metz -- BMO Capital -- Analyst

Thanks guys.

Operator

The next question comes from Christine McElroy with Citi. Please go ahead.

Christine McElroy -- Citi -- Analyst

Hey guys. Good morning. Just with regards to your -- the small change that you made in same-store. Why not change the FFO range as well? I get the -- the second half is still somewhat uncertain which you talked about, the level of conservatism in there, but are there any other other sort of offsets in FFO that we should be thinking about?

Conor C. Flynn -- Chief Executive Officer

Not really, Christine. I mean again the first quarter had a few things in it that probably won't repeat, as I mentioned in my prepared remarks. We did have an LTA (ph) in the first quarter. We don't have any further LTAs in the guidance and we did recapture a couple of leases that have below-market rents in them that were more outside than normal and we don't expect those for the balance of the year. So right now we are gonna leave our guidance as it is and again we did bump the lower end of the same site guidance.

Glenn Cohen -- CFO

Also the dispositions, Christy are more front-end loaded to the beginning of the year. So that factors into it.

Christine McElroy -- Citi -- Analyst

Okay. Got it. And just, Glenn following up on the $16 million to $18 million of incremental NOI from redevelopment that you've been talking about, can you just provide a little bit more color or maybe an update on sort of the timing of that coming on line, and can you remind us, is that the annual NOI from those projects or is that the 2019 impact?

Glenn Cohen -- CFO

That -- the $16 million to $18 million is the incremental 2019 impact. And again as I mentioned, for the first quarter, the incremental amount was about $3.5 million. So we're on track to achieve that $16 million to $18 million range.

Christine McElroy -- Citi -- Analyst

Okay. Got it.

Glenn Cohen -- CFO

And the total for those properties for the year is expected to be somewhere in the $25 million to $28 million range.

Christine McElroy -- Citi -- Analyst

Okay. Thank you.

Operator

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

Greg McGinniss -- Scotiabank -- Analyst

Hey, good morning guys. Just based on operating results so far this year, if your internal expectations for bankruptcies or uncollected revenue has fallen since the initial guidance? And then looking at the watch list its -- on my watch list it's clear that Kimco and peers have exposure to some, let's call them, less robust tenants with debt maturities in the 2021-2023 time frame. So there's still some time to address but I'm curious how you are handling those retailers as well.

Conor C. Flynn -- Chief Executive Officer

Yeah. It's a good question. I think when we look at our guidance so far this year there has been less closures or less bankruptcies than we anticipated. And that has to do with again some of the strength of the locations that we have. For example, when you look at the Sears Kmart portfolio that we have, they're only rejecting two of the leases with us, which obviously, as a quality spectrum shows that these are very high quality locations with below-market leases. We continue to see that the churn or the vacancy rate is slowing in our portfolio. And we continue to monitor that going forward as you saw our occupancy tick-up in Q1 versus historical normal rates. So, we'll continue to monitor that closely. And then when we look at our risk management tools, we really focus on understanding the at-risk tenants in our portfolio. The mark-to-market of those leases and really work on really years ahead of time of when those leases may come to fruition and how we can reposition that real estate. And we continue to see I think our credit scores improve.

I think we're the only peer that has the highest investment grade tenants in our top 10. We continue to improve that. A lot of these retailers -- these legacy retailers are in great locations with below-market leases which actually is a good thing for us. When you look at the opportunities set going forward, we see that retailers are salivating for these types of locations. And with very little to no new development on the horizon, we think we're in a good position to really capture the Who's Who of the retailers that are really doing successfully implementing e-commerce into their physical brick-and-mortar. And we think we're on the right path to unlock that value.

Greg McGinniss -- Scotiabank -- Analyst

Great. And then just as a follow-up. I recognize there is still a lot of pipeline left to deliver and the expected development investments gonna fall next year and beyond. But how are you thinking about the future of Signature Series development and potential multifamily investments over the next few years?

Conor C. Flynn -- Chief Executive Officer

It's a good question. I mean, in my prepared remarks, I mentioned that we have over 4000 apartment units entitled. And we've continued to look on our entitlement path of really ways to create value for our shareholders long term. Where our cost to capital sits today, we have taken the path where the lion share of what we're doing to unlock value is through a ground lease to apartment developers. That allows us to gain the mixed-use component which drives traffic and drive sales to our retail, but not necessarily have a capital requirements to fund it. So we continue to see that as a nice opportunity going forward in the portfolio. We do want to finish off our Signature Series assets and continue to look toward the future and see when the next opportunity comes around, where our cost to capital is, and what's the best way to unlock that value. So you'll see our entitle at work continue but we will be very selective in terms of what we add to our pipeline going forward.

Greg McGinniss -- Scotiabank -- Analyst

Thanks for the color.

Operator

The next question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Hey, good morning out there. Just two questions. First, on your capital plans, just given where we are in the cycle and that Albertsons -- the modernization of that seems to be sort of maybe at someday, maybe something will happen. You guys obviously have had a really good run year-to-date up 20%. You're not quite at consensus maybe but you're not far. What about issuing equity, one, to delever? I know you guys don't include preferred's but with preferred's you guys are on the high side? And then two, that way what starts to at least reduce the leverage question and hopefully, you guys continue to grow which solves the dividend part of the equation as well so if you could just give thoughts?

Conor C. Flynn -- Chief Executive Officer

Yes. Sure thing Alex. When you look at our capital plan, we have no need to issue equity at our current levels. We continue to see our discount to NAV to be significant. And our capital plan lays out a strategy where we can match funds. Really the proceeds from our dispositions to finish off our Signature Series developments and redevelopments. You have to remember the lion share of the funding is already completed for most of these projects. And so we are -- we have to be patient a little bit to get the incremental NOI because that's really what's going to juice our FFO, our EBITDA and help the dividend coverage toward the end of this year into 2020. And we'll continue to look at that and be a good capital allocator going forward. We also have no debt maturing really between now and 2021.

And so when you look at the levers (ph) we have, clearly you mentioned the preferred's, now we do have some that are callable as our option (ph) but that's the beauty of preferred's, they're callable at our options. So we'll look at that and see what is appropriate. And we do want to improve the balance sheet long term but we are very -- we are in a good position.

We think we're well-positioned going forward because of our liquidity position and because of our lack of near-term maturities. And so when we look at the trajectory of the Signature Series NOI and where we see all the metrics going forward, we feel very comfortable to be where we are today and feel confident in the future of the company.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. And then as far as guidance goes, I mean you responded to several analysts before but still even if you front-end way the dispositions really doesn't impact your guidance -- sorry, impact earnings. So is it -- are you guys just being overly cautious just because of what you experienced in the past few years in retail? Or is something changing in your watch list that's giving you some trepidation that maybe there will be increased store closings or something of that sort?

Glenn Cohen -- CFO

Alex, it's Glenn. I will just say the same thing. It's early in the year. We've put out guidance based on what our budget was. We are happy with the results of the first quarter. And we'll take it quarter by quarter and see how things go. I mean, again we're still dealing and watching things closely with tenants on our watch list. And we are very cautiously optimistic about where things are headed.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Thank you.

Operator

The next question comes from Craig Schmidt with Bank of America. Please go ahead.

Craig Schmidt -- Bank of America -- Analyst

Thank you. I guess I'm focusing on the three sale leaseback transactions. Is that something you want to do more often? And what is the ultimate aim here?

Conor C. Flynn -- Chief Executive Officer

Yes. I mean for those three particular assets we feel very confident that we struck an attractive deal for us at a six-four cap rate on West Coast assets where the grocer was doing on average $775 a square foot in sales. We think that there was substantial value creation particularly when you look at some of the comps on the West Coast in the 5s for similar-type assets.

We'll continue to evaluate those opportunities both within the Albertsons banners as well as other retailers that are exploring opportunities to sell some of their own real estate. But again, it's going to be very selective. It's going to be strategic. And we want to also ensure that we keep any sort of tenant concentration in mind and clearly, as I mentioned in the prepared remarks, the main focus for the spend this year is going to be on the internal growth of the Signature Series. So where the opportunity presents itself, we will certainly pursue and transact but it's going to be pretty limited.

Glenn Cohen -- CFO

Keep in mind, Craig. We own the small shops that were shadow anchored by the grocery store. And so when you combine the cap rate that we paid for the grocery store and then you combine that with the small shops we see significant NAV improvement because really, when you look at the grocery anchored comps that are out there today, we feel like we put the site back together and created significant value.

Craig Schmidt -- Bank of America -- Analyst

And will I be right in assuming that you would be mainly supermarket-focused in this process?

Ross Cooper -- President and Chief Investment Officer

I think we look at opportunistic acquisitions within our key markets. And when you look at what's out there today, groceries and shopping centers are some of the most aggressively priced assets in the market today. And then we look at redevelopment opportunities. I think those are the two key core competencies that we focus on today. And it's very tough to make the new numbers work when you're trading at a discount to NAV.

Craig Schmidt -- Bank of America -- Analyst

Okay. Thank you.

Operator

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

Wes Golladay -- RBC capital -- Analyst

Hey, good morning guys. I want to go back to (ph) call we did late last year. You had highlighted six projects that could start over the next one to three years. In this call you mentioned you made ground leased these projects, will any of them start commencement of construction in the next year or so?

Conor C. Flynn -- Chief Executive Officer

Again it's at our option. We have secured entitlements on a number of those projects. And once we get to the point where we're ready to make a decision, we'll go through our decision tree and see where our cost to capital is. We've always talked about the opportunity set and say do we self develop? Do we contribute the land into a joint venture? Do we ground lease or do we sell an asset? And so again because of the opportunity within the portfolio and the immense entitlement that we've already secured, we feel like we're on the right path to really create a lot of value for our shareholders and then each and every opportunity will be a unique decision because no two sites are alike and we really have to weigh our cost to capital and where we want to put our capital to work. And so it really will depend on the individual sites.

Wes Golladay -- RBC capital -- Analyst

Okay. And then looking outside of your -- the tenants you disclosed, the top 50 or so, how are the credit trends for the other tenants?

Ross Cooper -- President and Chief Investment Officer

Credit trends are continuing to improve. I mean when you look at some of the retailers that we have, it's really the best-in-class of retail today. To meaning to think how the credit has evolved over the years, It's clear where the -- what's working today is service and convenience. And when you look at what we provide to our shopper base, we really take advantage of that. We do think that there is going to be some opportunity for PetSmart to improve their credit. Obviously you saw that they filed for to take Chewy public. Now it will all depend on what they do with the proceeds and how they use that potentially to pay down debt or the parent. But we are excited about some of the retailers that have improved their credit quality and continued to want to expand with us.

Wes Golladay -- RBC capital -- Analyst

Okay. Thanks a lot guys.

Operator

The next question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Derek Johnston -- Deutsche Bank -- Analyst

Hey guys.It comes up every few quarters. Is there any update you can share on your thinking with Albertsons, especially with the recent management change there?

Ray Edwards -- SENIOR KEY EXECUTIVE

Hi. Good morning. It's Ray Edwards here. I think I'm not sure you saw they had their year end financials reported last year and the company is-- we know it's on track with their goals. They had a couple of major goals for the past year which they met. One was to have $2.7 plus billion of EBITDA that about $2.74 billion. They also through the sale leaseback program reduced the debt on the balance sheet by over $1 billion. The last part of the program and that was announced at the -- with the earnings call was the appointment of new CEO to take the company to the next step. And I think the company is going in the right direction doing all the right things. Listen I think if you look at what we've done with Albertsons in the last few years especially. A lot of other private equity firm could have taken that sale leaseback money and made it distribution to the equity and hurt the company. And we're really focused on improving this company, bringing the best shape it can be that way at the right time when the (ph) markets are there. We can achieve the best value for everyone.

Derek Johnston -- Deutsche Bank -- Analyst

Thanks . And then the entitlement process had come up a little bit. Can you just talk about any changes that you might be seeing there in terms of the process? Or if any amount of time to get approvals for larger developments or event for backlog (ph) opportunities?

Conor C. Flynn -- Chief Executive Officer

I think entitlement is always unique to the municipality that you're dealing with. I think the nice part about Kimco is that we're long-term holders and we forge these partnerships with these municipalities, knowing that we are going to be here for the long term. Most developers secure entitlements and then flip it the next day. And so we take a very different approach with these municipalities knowing that we are going to be here for the long haul and forge partnerships and making sure that they feel comfortable with our approach. And we have seen success recently with a number of our projects and we'll continue to focus on the portfolio of the future. And we feel really that we're just scratching the surface. We are in the first ending of our entitlement process. And it's always amazing to think that in a short period of time, we've already secured over 4000 apartment units.

Derek Johnston -- Deutsche Bank -- Analyst

Thanks. That's it for us.

Operator

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

Michael Mueller -- JPMorgan -- Analyst

Yeah Hi, I guess the two questions are one, can you talk a little bit about resi leasing trends at recent projects? And then with shop occupancy over 90% -- I think it's 90.6%, how much more room do you have to move that up?

Conor C. Flynn -- Chief Executive Officer

Yes. So on the residential site with Lincoln Square, that's our project in Center City. As you can see in our (ph) this quarter, it was up substantially. It went on from 38% to 55%. 177 units leased as of the end of this last quarter and we're just moving into the high season now. So we are expecting to see that trend accelerate through the spring and summer as new -- people are moving into the city looking for new jobs and also the University site. So we'll expect to see an acceleration through the balance of this year.

As it relates to -- sorry, yeah, the small shop site ,what we saw was our typical seasonal turnover. Now the turnover here was about 50 (ph) basis points down from prior quarter. We had a number of tenants that extended through holdover through the holiday season and into January. So we actually had, I'd say, slightly better than what we'd originally assumed. As a result the Q1 and the small shop site, that continues to be very very strong, Health and Wellness is very popular, Food and Beverage obviously is strong. And we expect to see that through the balance of the year.

Michael Mueller -- JPMorgan -- Analyst

Okay. What would you consider to be full in terms of small shop occupancies, at 92? Somewhere in there?

Conor C. Flynn -- Chief Executive Officer

Previous our all-time high was 90% and we eclipsed that by getting over 91% last year. So obviously we are trending into new territory here. We think we can push northwards of those numbers. So you'll have to stay tuned and see how hard we can push it. Obviously, we see the upside in the portfolio in the small shop space but we also have a lot of momentum building on the remaining boxes in the anchor space. So it's nice to see that we have a really dominant portfolio that's really starting to trend in the right direction.

Michael Mueller -- JPMorgan -- Analyst

Okay. Great. Thanks.

Operator

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

Linda Tsai -- Barclays -- Analyst

Yeah, Hi. What drove the spike in higher above and market below -- sorry above and below market revenues?

Glenn Cohen -- CFO

Sure. It's Glenn. So we had two leases that we recaptured, one was a grocery tenant and one was a J.C.Penney. One of the boxes is already leased. They come from ,again the 141 Analysis that's done when you acquire the assets. Both of these leases were significantly below market. And when we recaptured the box, you take the below market rent into income. So the total for those two was around $5 million.

Linda Tsai -- Barclays -- Analyst

And so you would expect that to kind of normalize in the upcoming quarters for the remainder of the year?

Glenn Cohen -- CFO

Correct. When we look in total at, like our straight line rent and our above and below market rents, those two categories together on a normalized basis, they are around the total of that $7 million to $8 million a quarter.

Linda Tsai -- Barclays -- Analyst

Thanks. And then in terms of the decline in lower disposition cap rates, do you think that's more a function of the composition of the assets you're selling? Or a function of improving cap rates across-the-board for the market you're selling in?

Conor C. Flynn -- Chief Executive Officer

Yes. I think it's a combination of both of those factors. And there's a few other things that I look at when evaluating our disposition program and the success that we've had thus far. I think, first and foremost is clearly improved portfolio. And when you look at the quality of even the tier 2 assets that we're selling, they're much improved compared to years passed.

So the subset of assets in the pool is much better. The limited volume that we're doing allows us to be more opportunistic which the -- with the asset that we're selling. So Palm Beach Gardens was an example that I gave in the prior remarks where that was one that wasn't necessarily expected for Q1 this year but we took advantage of an opportunity and offer and struck with that one. The other one that was mentioned in the transaction release was Arboretum in Austin which is a good market, It's a solid asset but it was one where a buyer came along that had a vision for the site that included a redevelopment of the asset that at the price that they offered was well beyond what we felt that we could create in terms of a risk-adjusted return. And ultimately decided that selling it was the best course of action. I think also when you look at capital formations in retail, we've had limited supply i think compared to 2017 and 2018 where more of our peers and ourselves had much bigger volumes of dispositions. So the limited amount of supply in the market has helped keep pricing in check.

And finally I would say that -- that interest rates clearly remaining low in our favor have helped our buyers make stronger offers and that debt continues to be readily available for our buyer. So I think all those factors have really contributed to our ability to push pricing and have strong execution on the dispo program.

Linda Tsai -- Barclays -- Analyst

Thanks for that color.

Operator

(Operator Instructions) The next question comes from Haendel St. Juste with Mizuho.

Haendel St. Juste -- Mizuho -- Analyst

Hey good morning out there. I wanted to follow up on the last question, Linda's question, understanding that the heavy lifting on the disposition side is behind you but given the stronger pricing demand and lower rates you just outlined, Ross I'm curious how likely is it that we could seek and go, be a bit more aggressive in selling assets this year? Perhaps not close to the level of last year obviously but just curious how the improved demand and pricing environment may play a role into your thinking on dispositions?

Ross Cooper -- President and Chief Investment Officer

Yeah. We're certainly pleased with the demand and the execution. But we're very focused on staying within the $200 million to $300 million that we've outlined. So we have the capital plan in place that really puts us in a position over the next few years of where we want to be to fund all of our obligations on the development in Signature Series and to continue to focus on balance sheet. So while the market may change for the better on the dispositions over the course of the year, we're going to stay on track with what we've outlined.

Glenn Cohen -- CFO

I think the other thing I'd add is, if you look at how the portfolio has really transformed (inaudible) point of that is how it's really started to shine a 2.9% same-site NOI growth last year, we are off to a really strong start this year. The portfolio is producing the things that we would expect it to produce. So when we were going through the the disposition analysis, we were really looking where risk was? And where we saw a downside risk and that's we wanted to move out of those markets and those assets. The portfolio is very very strong today and it's producing levels that we think are really consistent and long-term growth looks.

Haendel St. Juste -- Mizuho -- Analyst

Appreciate that. And Glenn while I have you, I wanted to ask maybe to clarify an accounting question for you. Wanted to clarify specifically Kimco treats lease termination fees versus the rent that's lost when its tenant leaves? So if the tenant leaves and pay the termination fees -- that termination fee not counted in same-store NOI but you keep booking the rent as if the tenant was still there until the end of the lease? For instance Mattress Firm. If they pay a termination fee in the first quarter of the year but their lease was scheduled to expire in the fourth quarter of that year, would you continue to book the rent through fourth quarter as a non cash (ph)?

Glenn Cohen -- CFO

With lease termination fees have -- are not in same-site NOI and have never been in same-site NOI. The Mattress Firm was a unique situation where you had a bankruptcy settlement at a hundred cents on the dollar and quite candidly, it's a relatively small number. The total number thus was under $900,000. It makes up 10 basis points for the year. But no, lease terminations have never been in our numbers.

Conor C. Flynn -- Chief Executive Officer

And when the tenants falls out, they are out. We don't have them continuing in the same-site NOI number.

Haendel St. Juste -- Mizuho -- Analyst

That's it from me. Thank you.

Operator

The next question comes from Vince Tibone with Green Street Advisors.. Please go ahead.

Vince Tibone -- Green Street Advisors -- Analyst

Hey good morning. Just one quick question for me. You mentioned only two of your Kmart leases have been rejected. Do you expect the remaining locations to remain open and what would your exposure to be -- exposure to be to Kmart after all anticipated rejections?

David Jamieson -- COO

Yeah. This is Dave. So right now we actually have -- two of the leases that are being assumed are dark and pain and they're significantly below market and they continue to pay rent on those. But beyond that all the other ones are open and operating and continue to perform. So we are -- we're prepared for whatever events may unfold in the future but as we stand today that's where it is.

Unidentified Speaker --

(multiple speakers) 45 basis points.

Vince Tibone -- Green Street Advisors -- Analyst

Got it. Okay. So that means, you know roughly 15 to 20 basis points of NOI came off line with the two rejections. Is that fair?.

Glenn Cohen -- CFO

That's on a full year basis

Vince Tibone -- Green Street Advisors -- Analyst

Correct. Okay. Thank you. That's all I have.

Operator

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

Chris Lucas -- Capital One Securities -- Analyst

Hey good morning everybody. Hey I just want to make sure I understand on the two rejected leases you said they resumed, so there's no NOI loss there to the company correct?

Conor C. Flynn -- Chief Executive Officer

You've got to separate it into two categories. There's two leases that were rejected. And so they have now since come back to us in which we have -- NOI is in process for those two. Out of the pool that was resumed, there are two leases that are currently dark and pain.

Chris Lucas -- Capital One Securities -- Analyst

Okay. So -- so let me just go back --I really did want to spend time on this but just let me -- let me make sure I understand, of the stores that you started the year with...

David Jamieson -- COO

Chris, to help you out, we started the year with 13 of them, of which four were on the initial closure list that went from the dark and pain, two of those resumed, two were rejected.

Chris Lucas -- Capital One Securities -- Analyst

Gotcha. Okay thanks -- Thank you Dave. I guess, just my question really wanted to focus on the same store NOI guidance, I think for the initial guidance you had provided a 100 basis points of reserve was sort of your budget, I guess just curious as to how much of that 100 basis points was eaten in the first quarter and probably more broadly as we think about the rest of the year on same store NOI, is the bigger factor in terms of the range and where this outcome might be more related to rent commencement toward the back end rather than the bad debt or lost revenue from tenant fallout. I'm just trying to understand sort of where the -- where the maybe the disconnect is in my mind between those kind of where -- where performance is today and where the outcome might be for guidance.

Conor C. Flynn -- Chief Executive Officer

Yeah you're correct-- you're correct that our credit loss in our forecast is a 100 basis points for the year for the first quarter, we used about 57 basis points, we're a little ahead in terms of our budget on credit loss. That's helpful as we go through the year. The guidance range whether it be the high end or the low end, it's a combination of the things that you mentioned, it's when rent commencement start, because we do same site NOI on a cash basis. So we have this 230 basis point spread between lease and economic occupancy. It's really the timing of when those come on line. In our forecast we expect that around 25% of that spread would come online during the year. So again rent commencements are important. We budget some level of tenant fall out. If there is a large amount of additional tank (ph) full that's not in there, that would have an impact on it. But those are really the drivers, the credit loss, we still remain very comfortable.

Chris Lucas -- Capital One Securities -- Analyst

Okay great. Thank you.

Operator

Next question comes from Ki Bin Kim with SunTrust. Please go ahead.

Ki Bin Kim -- SunTrust -- Analyst

Thanks. Good morning out there. Just bigger picture, any notable trends in rent relief? How much rent relief you are giving tenants, the number of tenants or some type of pre-emptive adjustments to leases that you're making versus like the past couple of years?

Conor C. Flynn -- Chief Executive Officer

No, there really hasn't been a -- been a change in the dynamic of the discussion. It's all driven by supply demand, our higher quality portfolio is pushing the demand side for retail tenants wanting to get into the market and into our center. So we've seen this as an opportunity. I think it's reflected in the rents that we're achieving in the extended terms. So you know that -- that's what we've been seeing, again it's always case by case. And so you have to feel that as it comes but there hasn't been any material change in terms of that dialogue.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And sticking with the same theme, I know it's going to be case by case and asset by asset but what's the risk that, you know if I'm a good retailer and I realize I'm the draw to the center and why the center exists, but at the same time the weaker tenants are getting 35% rent relief in some cases when I'm paying much more, what's the risk that -- you know I come back to you guys and say, you know, why should we be paying much more than some other more troubled tenants especially if i'm the draw to the center?

Glenn Cohen -- CFO

I think you really have to look at the drivers of traffic into our sites and luckily, where we sit today with our transformed portfolio, the supply and demand is in our favor. And so there are more high quality tenants driving traffic that want to be in our locations and the legacy tenants that have not evolved with the new world of retail, those are the ones that we can't wait to to recapture and reposition with better credit and better quality tenants. We have very high occupancy. When you look at our -- both our anchors and our small shops, and you look at our our mark to market opportunities you know typically there aren't relocation opportunities within these -- these high target markets where they can get a better economic deal versus what they're paying for that.

Analyst -- -- Analyst

Okay. Thank you.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to David Bujnicki. Please go ahead.

David F. Bujnicki -- Senior Vice President of Investor Relations and strategy

Thank you for participating in our call today. I'm available to answer any follow up questions you may have, and I hope you enjoy the rest of the day.

Operator

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

Duration: 54 minutes

Call participants:

David F. Bujnicki -- Senior Vice President of Investor Relations and strategy

Conor C. Flynn -- Chief Executive Officer

Ross Cooper -- President and Chief Investment Officer

Glenn Cohen -- CFO

Rich Hill -- Morgan Stanley -- Analyst

David Jamieson -- COO

Samir Khanal -- Evercore -- Analyst

Jeremy Metz -- BMO Capital -- Analyst

Christine McElroy -- Citi -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Wes Golladay -- RBC capital -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Ray Edwards -- SENIOR KEY EXECUTIVE

Michael Mueller -- JPMorgan -- Analyst

Linda Tsai -- Barclays -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Unidentified Speaker --

Chris Lucas -- Capital One Securities -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

Analyst -- -- Analyst

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