Kimco Realty Corporation (KIM) Earnings Call Transcript & Summary

Our next roundtable session is with Kimco. Thanks, everyone, for joining this session today. Maybe I'll just quickly close the door. Great. I'm Jeff Spector. I'm here with my colleague on the far right, Andrew Reale. We have from the Kimco team, Conor Flynn, CEO, in the middle; next to him, Ross Cooper, President and CIO; to my right, Glenn Cohen, EVP and CFO; and Dave Bujnicki, SVP, IR and Strategy. So thanks, everyone, for coming today. Again, similar to the last roundtable we did, it's a diverse group of investors in the room. So we will -- number one, we want to make this interactive. So if there are questions from the audience, please raise your hand or shout out. We do want to address various topics. And then I want to make sure everyone walks away understanding exactly who Kimco is, and their strategy, et cetera. So we typically open things up if you have any opening remarks, Conor, or want to discuss Kimco today and where you stand, that would be helpful. Thanks.

Absolutely. Thanks everybody for the time. It's an exciting point in Kimco's history. Yesterday, we received an A- from Fitch for our credit rating, which is obviously a testament to the effort we've made to continue to improve the balance sheet over the past decade. The portfolio is in great shape as well. So if you think about the components of the team. I feel really good about, obviously, all the team members that we have across the organization, pushing Kimco to new heights. And the platform itself, I think, has evolved now to where we used to be sort of known for efficiencies of scale. Now we're really turning the dial to advantages of scale. And what I mean by that is we've released on a nice job in terms of looking across the organization and empowering our team members to look and see how we can improve growth. And the evolution of retail, I think, has come a long way in a very short period of time. I think the 2 biggest overhangs that we were facing over the past decade was really obviously the onset of e-commerce, which was going to be the death of brick-and-mortar. It started a term, retail apocalypse, which you probably all remember and sort of the evolution of every single e-commerce player turning into a brick-and-mortar player. And how you go about utilizing your e-commerce platform to understand your consumer better with all of their data, and then utilizing that data to understand where they live, work and play, and facilitate the most convenient and value proposition you can by opening stores within the community is where your customers live and work. And so that's really been the strategy of retailers for the past, I would say, 5-plus years. And you continue to see it across our portfolio with the pricing power as well as the occupancy lift that we've seen on all square footages. We're at a point now in the cycle, where we're seeing significant pricing power. A lot of that is due to about 13 years of virtually no new development. There's 0.3% of existing stock under construction in retail and shopping centers today. That's the lowest of any commercial real estate sector. And it's been about the same for about 13 years. So the second big overhang that we faced over the past decade, was oversupply. Everyone would compare the U.S. to any other developed nation, talked about retail per capita and how much oversupply there was in the U.S. market. So those are the 2 big overhangs that we faced over the past decade. Now the supply side has really balanced to where it's a landlord-friendly environment. Again, nothing new coming out of the ground for the past 13 years, a lot of demolition of defunct retail that needed to go away. And then you see the ability now for retailers to look at high-quality retail space and there's just not a lot available. So you're seeing improved economics across the board. You're also seeing a dynamic in the bankruptcy courts that we haven't experienced before. You're seeing a wide range of retailers bidding on bankrupt boxes, mainly because those leases are valuable because the below-market leases that are in place and because they're irreplaceable in today's market. So you're seeing over 50 of our spaces that went through bankruptcy this year alone have been either acquired or assumed by retailers. And that's really remarkable because you see sort of now really high-quality retailers having to be creative to fulfill their expansion goals. So what used to be, this is my prototype. This is the corner I want. You either give it to me or I'm not going to do it, now they're much more flexible on square footage size. So they range in terms of what square footage they can make work. They also have determined that, hey, if they don't get the space today, there's a fear of missing out component that it's not going to be there tomorrow. And so our combination of grocery-anchored shopping centers with the off-price sector, that continues to gain market share from department stores, it really is, I think, the sweet spot of retail today. You look at traffic year-over-year, it's up. You look at consumer spending, you look at where -- you look at dwell times and you look at the use cases for shopping centers, it really continues to evolve to encompass almost anything you can think of. It used to be your steady eddies of goods and services. And now it's medical. Now it's health and wellness. Now it's beauty. Now you name it. It seems to be what's convenient and what's value works in shopping centers. And that continues to be, I think, why Kimco is well positioned here for the next leg of growth.

Great. Thank you, Conor.

Starting off with the balance sheet, and congratulations on the A- rating, and maybe asking Glenn, I mean, are you happy now where the balance sheet stands, or should we expect any other changes over the next year in terms of further deleveraging or possibly increasing the leverage of it?

No. No. I mean I think we like where the balance sheet is today. We're operating at a mid-5s net debt-to-EBITDA level on a consolidated basis. It's a couple of ticks higher when you add in the preferreds. And we've been running the company towards this goal. So it's great to finally be recognized by at least 1 of the rating agencies so far. We have more work to do with the other 2 to have them maybe see the light a little bit, but we'll work through that. If you look at how we price our bonds, we price very close to where an A- would price anyway. But there were some real advantages, right? There's only -- with us now included, there's only 12 REITs of the entire REIT world that have an A rating. If you look at the multiples of those REITs, for the most part, they all trade at higher multiples. It opens you up to an additional source because there are certain bond investors that will only buy A-rated paper. So there's a lot of benefits to it. And then as we talk with, obviously, Conor and the rest of the management team and the Board, we're running the company this way. We've been running the company this way. It's not like we're forcing the issue to be an A-rated company. We have the discipline to run it this way. And if you look at the cycles that we've been through, clearly having an incredibly strong balance sheet with a lot of liquidity puts us in a position when things get challenging and tough, where we can really be opportunistic and not be victims. And you could just look at how we operate throughout the pandemic and the balance sheet is even stronger today. So we think it's really well positioned, and we're really poised for growth.

I think when you think back of like Kimco's history and maybe some of the overhangs of the past, we were operating with higher leverage than any others in the sector for a long period of time. And I think we set out to take that point to heart and say, "Hey, look, if we're going to be regarded as best-in-class from a management standpoint, from a platform standpoint, we have to work really hard to get the leverage to a level that will be reflected with the credit rating upgrade." And it's great to get there, but it comes with a level of discipline to keep it. And I think that's really where our team is very much aligned and focused on making sure that we have accomplished a great goal, but it's -- now it's all about maintaining that goal and operate in the business, as Glenn said, in that level.

For some of the yield investors in the room, where is the current yield today, what is your cash payout ratio? And is this at the level you hope to maintain it? And we get asked a lot, in particular, for the shopping center REITs, what's the strategy on increasing the dividend, many tie it to earnings growth, if you could remind everyone in the room?

So sure. So from an AFFO standpoint, we pay out about 80%. The company today is generating about $140 million of free cash flow a year and that's after CapEx, TIs, leasing commissions. Again, it's really important for us. So our cheapest form of capital is that capital that we retain. So that $140 million a year, and we're trying to work towards growing that. We would expect to maintain an AFFO payout ratio. We're not really in that low 80s percent range, which again affords us this growth of retained earnings on this $140 million-ish range. The dividend, obviously, we are very, very close to taxable income today. So as FFO and AFFO continue to grow, these -- a good chance that the dividend kind of grows -- lockstep with it as taxable income, we're right at taxable income today.

Okay. And then, Conor, you also started with known for efficiency of scale, but you want to turn off the dial. Can you elaborate on that, please?

Sure. So I think being the largest in the sector, you look at your platform and you really understand -- you try and focus the team on taking advantage of what differentiates Kimco from our peer group. And so we do a number of different things that I think that differentiates us, and again, creates advantages of scale. On the operating side, we've been known to run lean and mean. That's sort of been the Kimco 101 of the past. And so we continue to wear that as a Badge of Honor because we do feel like shareholders want to make sure that you're the most efficient operator as possible. And you saw with the RPT transaction as we upped our synergies numbers twice. When you look at the advantages that we think we bring to the table, obviously, our relationships, I think, are one that we take advantage of. Not only within the retail world because obviously, there's a lot of folks that have relationships with all the biggest retailers. But if you think about what we were able to accomplish with the Albertsons investment. And sort of that consortium with Cerberus and others, we continue to think that having a wide strike zone of opportunities that we could take advantage of to utilize our platform to create value, there's a tremendous amount of capital all chasing this very, very tight strike zone of grocery-anchored small shopping centers in the best markets. And those assets are priced to perfection. And what we see is a unique opportunity is our platform to again play in a wide array of different opportunities to allow us to create outsized returns for our shareholders. And again, that can be through structured investments, where we put in mezzanine financing with the Right of First Refusal. And all of those investments are looked upon as future acquisition opportunities for us. We look at different things that are retail adjacent, sometimes sale leasebacks, sometimes we look at unique investments within retailers like Albertsons and continue to look at our scale with technology and how quickly that's advancing. The artificial intelligence, obviously, being sort of front and center, but all the different things you can use technology platform to grow just incrementally at a higher clip is super important to us. So we look at whether it's Climate Tech, prop tech, artificial intelligence, it's really, again, a lens across the whole organization of how we can take our platform and create sort of flex the muscles of creating sort of the best-in-class platform.

And on the tech side, we're not talking just about you're saying expense savings, we're talking about using tech in a better way for investments or in leasing or what is the...

It's a little bit across the board. So we use it -- now it's sort of integrated into the whole organization. But if you think about like lead generation on the leasing side, a lot of chatbot's, artificial intelligence are becoming sort of the forward-facing of how to create a dialogue with people that are interested in leasing online. A lot of that tech that we used were -- advertising in multiple different scenarios. There's a lot of artificial intelligence that's used for renderings as well as potential redevelopments. If you look at sort of the documentation portion of our business which is the lion's share of the deal curve is sort of the touring of the space, which you can do virtually now, there's 3D renderings you can walk into anything versus the signing of the letter of intent. You can sign a letter of intent online. You can do things through just the portal that we have, taking that LOI and creating a lease document. Obviously, artificial intelligence is very good at documentation and creating documents. So again, it's all about accelerating the deal curve. And then so almost all points of the deal curve can be accelerated using technology. And so that's where -- when you think about how we've raised guidance 2 times this year, a lot of it is due to the fact that we've been able to bring tenants online faster and getting them paying rent quicker. And that is, again, accelerating that deal curve, trying to get them in, open and operating as quickly as possible because that compresses your signed, but not open pipeline, and that's a sizable amount for us. It's 320 basis points, over $60 million just sitting there. We want to get online cash flowing as quickly as possible.

How long did it take to open a store, let's just go back to pre-COVID. And then I assume, I know during COVID in that length of time increase and then where is it today? And is there a target like, or it just naturally with these initiatives, you're going to -- you're hoping to reduce ex amenity?

So the way we look at it is we look at it on a per day. If we can save 1 day, how much money does that equate to? And so each and every lease in our pipeline that we look at, we say, okay, this is the assumption of how long it's going to take. And this is every day that we can save is going to create that much value. And so that's -- what we utilize to sort of, again, keep the team motivated, keep them working hard to try and expedite that deal curve. But we've gotten to a point where the deal flow now, again, that deal curve is compressed so we can get tenants in, open, operating faster than we could even pre-COVID.

Yes. Look, every deal is a little bit different, every lease is a little bit different. So what we've done is made an investment in 10 coordinators, who are really working hand in hand with smaller tenants or even larger tenants to the extent that they want it to help them with the permitting process, helping them with contractors, negotiating with tenants to use existing HVAC before we put new HVAC in. And we see that -- how it's been effective because those tenant coordinators -- I mean, there are people that -- if you're a small shop tenant, whether it's a nail salon or bagel place or something. They don't really understand the permitting process and all the construction that goes into it. These -- our tenant coordinators are helping them really get through that process, and it really does expect -- it really does speed up the time to get them open.

And tenants are, I guess, they're appreciating and cooperating. They want to open as quickly as possible, too?

They do.

Their best interest.

Yes. Exactly. And they're willing to take existing space conditions more frequently. I think that's one of the big changes is that they used to have a demand for their package of new HVAC systems, all things that sort of they want. And they recognize the delay of waiting for some of these new equipment, and so what we've done is say, hey, utilize what's existing. We'll replace it if it fails, but well -- let's get you in and open and operating quicker and they recognize they can do that.

And so you mentioned that you bumped guidance twice on. I guess, can you quantify, is there like this year -- if you go back to last year when you set the guidance, we think it takes x amount of days to open stores versus where it is today? Are you able to quantify that? Or we know that it's a few days. It's a...

It's hard to say specific again because it's -- it really is lease by lease. What we can say is we thought initially, we would have somewhere of $15 million to $20 million of our signed, but not opened pipeline to be able to activate this year, that number now $30 million to $35 million. So that will give you an idea of the impact it's having in terms of the speed at which we're able to get the tenants open today.

And then you talked about the synergies with RPT bumping that twice. Can you dive into that a little bit more? And then of course, do you have appetite to do more larger acquisitions? Are you happy with the current size of the portfolio and market positioning?

Sure. So I think I can kick and then hand it off to Ross. Obviously, RPT, we feel like has been a home run for us. If you think of the timing and where cap rates have gone since that announcement, we feel really lucky about that opportunity that we pounced on. It was 8.5% cap for the whole portfolio. We sold the lowest tranche at 8.5 of 10 assets. We see sort of the execution paying off already in terms of both the efficiency side as well as the NOI growth side. Just this past quarter, the same-site NOI for just the RPT portfolio was 4.5%, which is again, higher than what Kimco was producing. And that's still with a small shop occupancy, that's 400 basis points below Kimco's. And so if you think about where the growth profile is today, and vacancy upside across the shopping center sector. Most anchor occupancies are right around 98%. There's not a lot of juice there left to squeeze. It's really about the small shop ramp and where you can take it from here. And that's why -- the overlap of the portfolio was so significant that we thought with our platform, we should be able to dig in right away. And we're seeing that ramp already with the small shop growth and we think we can achieve faster than our underwriting achievements in that.

Yes, I think to the second part of your question. I mean we always have an appetite to grow, but we're going to do it in a way that's accretive. And with, as Glenn mentioned, the balance sheet very much in mind. So the first half of the year as we've watched our cost of capital, which we look at on a daily basis, it really was difficult to be competitive on the one-off acquisition strategy. So we really leaned into our structured investments, which, as Conor alluded to before, allows us with a wider array of investment opportunities. It gives us the ability to get our foot in the door on high-quality real estate that if we can't own it today, we get -- in our view, paid handsomely to wait. And then we have a Right of First Offer, Right of First Refusal that in the event that it ultimately gets sold, our partner/borrower looks to exit have the ability to match the market and close. So we've had this program in place really for the last 3 or 4 years. I think that we've done a nice job building up the program and getting a bunch of real estate in the book that we like and now it's getting to the point where we're starting to see some of those assets potentially come to the market and recycle that we can then look at potentially growing our acquisition pipeline. As our cost of capital has improved, more recently with debt costs coming down and equity costs coming down as well, we see more opportunities now to grow on sort of that one-off basis with external acquisitions in coordination in conjunction with our structured investment program. So we're excited to kind of put the pedal to the metal on the acquisition front as well. And we think there's going to be some opportunities that we'll be able to talk about in greater detail here shortly. But what I would tell you is that we've seen a differentiation, particularly for Kimco, where there's larger assets, larger format that tend to have a couple of ingredients that we really look for. The Stonebridge asset that we've talked about that we acquired last year is a good example of what we see today, where there's larger format assets, typically with a grocery component, potentially some junior boxes that rents on a basis that we feel that we can continue to push as well as some small shops that get the larger sort of annual increases in growth profile, and then sort of the cherry on top being a densification opportunity potentially in the future. So from our perspective, the deal size is a bit larger, which reduces the competitive landscape of investors that can cut a check that don't have a finance contingency or the need to raise equity to do it. And to be able to operate a more complex asset like that is something that our platform is really built for. So we're excited to showcase a couple of additional opportunities here soon.

I need to circle back to the occupancy gap. And just trying to understand how you close that gap because the demand in the marketplace is the same. You were sort of obviously, you're capturing more of the demand. And I'm just trying to understand how that actually works.

Yes. I mean if you look at their portfolio, now layered on Kimco's platform, what we try and do is do portfolio reviews regularly with large like retailers that are expanding with it. And so I feel like we do a good job in terms of capturing the market share of expanding retailers throughout our portfolio. And so when we look at that gap of small shop occupancy, we feel like with the categories continuing to expand of small shops, we feel like our platform can close that gap relatively quickly. And we've already started to see actually a ramp in that small shop occupancy of RPT into the Kimco platform. So we had like sort of an underwriting model of this first year, we're not really seeing any growth in that as we try and ramp up and start to put our platform work, but we've already been ahead of that as we see continued growth in the small shop side. Because if you think about it, it's very localized. I mean it literally is could be a nail salon, it could be a hair salon, it could be a quick service restaurant, but it also could be a regional chain that's going national. And so if you think about a Florida chain that's all of a sudden looking to go north or an East Coast chain looking to go west. All of a sudden, we have that connectivity point to say, "Hey, look, you need to do 10 stores in this geographic area. Come look at our portfolio, we think we can do 5."

So it's clear that you can see the advantage you would have with the larger retailers, right, because of your platform. But I guess how would that work with small -- I guess, some smaller retailers that [indiscernible] shop or bigger store, how does the Kimco reach help their [indiscernible]?

Many times we have clustered assets. So if you think about when like you drive past a shopping center and you see this sign, you say, "Oh, that could be a good opportunity for my business." You called the sign, and you say, "Hey, I'm interested in this shopping center that Kimco owns." Kimco might not have an opportunity in that shopping center, but what we can do is take that lead and bring them over to our adjacent shopping center that could potentially be a former RPT asset and say, "Hey, look, we're totally full here, but we can take advantage of sort of the clustering and that lead generation we can get." And that could be from just a sign call. That could be from Facebook advertising, all the different initiatives we're using for outreach. There's a lot of data now that we can use for mining our portfolio of understanding in our existing portfolio, tenants that, again, are doing so well that want to expand, that want to do a second store. Pura Vida is a great example of that, like that we just did a deal with in Florida, a great operator that continues to expand and is now going to come north. So like all of these data points and connection points we have, I think, again, it's -- a lot of it is just communication and staying in front of the ones that are continuing to expand and then making sure that Kimco is their first call.

It's also important to look at the composition of what makes up the small shops. I think historically, small shops sort of came with the connotation of mom-and-pop retailer. You mentioned bagel store and the nail salon. But even with the bagel store and the nail salon, a lot of these retailers today are corporate, or franchise driven. So when you the top 50 small shop tenants in our portfolio, which is classified as anything that's sub-10,000 square feet, 100% of them are national retailers, whether it'd be the bank chains, fast casual restaurants, fitness. It's a variety of names that are sort of household mom-and-pop names that you would know of that is who we're able to do deals with on a more portfolio level.

So I'll give you an example. JPMorgan is our largest small shop tenant. The bank branch. So -- and you can look at it. We have listing...

Bank of America is there, too.

So it's that type of situation. We also -- we do hundreds of portfolio reviews. So if you think about some small tenants, whether it'd be Starbucks, Dunkin' Donuts, all those types of chains that when you have a national platform, the way we do...

That's clear.

Yes. You're getting...

[indiscernible]

The franchises are driving a lot of small shops, right? So again, if you can be connected at the franchise or level, all of a sudden, they are the ones that are delegating sort of the territories of the franchisees. And so that's where we try and operate. We try and get in front of the parent co. And then we can locate again with the local franchisees.

Can you give a timeframe when you think you'll close the gap?

We're looking at the pace we're doing it at right now and continuing to extrapolate that out. But we're cautiously optimistic that it will be a lot faster than we anticipated.

You talked about capital, and all year, we've seen, heard that more capital is investing in shopping centers, retail real estate, but it sounds like there is still an advantage on the larger assets where there might be some other uses or things, you're willing to pay for, still the case?

Yes. No, that's definitely the case. And as I alluded to, I think there are unique attributes to some of those larger assets that are very difficult a smaller landlord that isn't as well capitalized to take advantage of besides the fact that you have to come up with a larger upfront check to close on it. The go forward is it's critical to have the platform, the technology, the team, the reach that we have to be able to really extract value from those more complicated and larger assets, and we're very well positioned to do that, and we're really leaning into that today.

And then where are -- I think, Conor, you had said the RPT was a home run in terms of timing and the cap rate, 8.5% cap rate you paid. I guess, where our cap rates today for the various types of shopping centers? And does it vary by region?

Sure. I think when you look at sort of the product types and obviously, RPT had all of these product types in it where the grocery-anchored -- small strip of small shops that's attached to the grocery anchor is, again, still pricing with a 5 handle in front of it, which is very aggressive, a lot of capital chasing that product. We saw recently trades go off in Florida that were very aggressive. And so when you think about that product as still sort of priced to perfection, that's why, again, I think the advantage of Kimco is the larger strike zone and seeing where we can potentially acquire things with [indiscernible] where we can create some value. Ross can talk about this, too. But like when you think about the range of product type and then how it's starting to morph into each other because power centers used to be sort of like category killer of each box. And that now has grocery components in, and then you look at sort of the target centers that we have and the combination of grocery plus small shop, and then you look at the mixed-use assets we have, and that's apartments with the retail, and those are pricing very aggressively still. So I think there's obviously a cap rate spread geographically as well as product type. And you start with sort of the most aggressive, which is the grocery anchor and then it goes up from there incrementally.

Like what's the thought. So 5%, it sounds like 5%, is that the low end? And where is the range today? Like where is the high and I think at ICSC at the time, in May, we were hearing maybe still close to 7%? Or what would you say?

Lower than 6%...

Lower than 6%?

Yes.

Yes. I mean there's just a couple of trade that grocery-anchored neighborhood centers in the Denver MSA that were in the mid-5s. And then you look at some of the larger format power centers or even the ones that we were just talking about that Kimco is leaning into that are closer to 7%. They have all the same components just a little bit larger and maybe a little bit more complexity, which we like. So we think that there's a real discount or spread for that same quality asset in the same MSA and demographics, but in a different format. And to Conor's point, you look at what we were just mentioning, there's an investment strategy related to various components of that asset. So there's investors that are looking for grocery. There are investors that are looking for big box power. You're seeing a tremendous amount of capital that's currently being raised and allocated towards the unanchored strip or just a small shop space. And then, of course, you have single tenant investors that are investing in the outparcels. So you can sort of bifurcate each and every one of these assets and see that there is an investment strategy and a separate capital source that's interested in a variety of components here. And we at Kimco are comfortable owning and operating all various formats, which is a differentiator for us.

We had just met with Simon, and they also talked about densification adding apartments. I know you're very active on that front especially for some of the international investors in the audience. How should we think about apartments or residential at the mall, same at the shopping centers can both be successful, if there's a housing shortage [indiscernible]...

Yes. I mean, when you think back to the Kimco strategy that we laid out, part of it was the geographic locations of what we wanted to do in terms of growing the clusters of the assets that we own. And we really wanted to focus on the first ring suburb of major metro markets. We thought that was the perfect balance of supply and demand. As sprawl will occur, population growth will typically occur in that first ring. And then you'll start to see the highest and best use of real estate evolve with that density growth. And so we've been on a mission here to showcase that there's a lot of untapped value in shopping centers. And I think we've done a good job in showcasing that through our entitlement program, where we look see how do you go about unlocking the highest and best use. And typically, for us, on our shopping centers, is the highest and best use in the parking lots that are underutilized is apartment buildings. And so we've gone about doing -- using a CapEx-light approach, where we go and use our human capital to go put the entitlements in place. And then we put those entitlement and say, "What's the best way to unlock value for our shareholders? Is it selling the entitlement rights? Is it ground leasing the entitlement rights with the Right of First Refusal." So again, you set up a leasehold where the developer is going to put in, put all the capital in, construct it, lease it, manage it, and then that lease is going to burn down. And we'll have the Right of First Refusal when they go to sell a leasehold position, we'll be able to buy a fee position and collapse that into the ownership. So there should be a nice spread there. Or do you take those entitlements and contribute them to a joint venture as your capital. So in essence, use that value creation that you've been able to generate from the entitlements to say, "Hey, this is the land value with entitlements and that will be our capital going forward in the multifamily development and ride side-saddle with the best-in-class multifamily developers." And we've done that as well. So it's a nice combination. We've seen this thesis play out where we always thought that the multifamily would generate improved sales to the retailers and the retailers would be the amenity base for the multifamily, so that the multifamily would price at a premium to market. Every single one of our projects that's played out. And so we feel really good about the program. It's a long-term program. It's one that it takes a long time to get obviously, entitlements. It takes a long time to get it constructed. But we are super enthused about the production of the assets that we've been able to put in the mixed-use program.

And we have a decade of projects. So we can just -- little by little, just put them in place. And again, on a capital-light basis, it's really just -- it's just a great way to do it.

I know we're almost out of time. We haven't talked about the -- I know you talked about the various categories and strength in those categories and how they've been -- you've been adding them to your various formats. Health, I guess, strength in leasing demand today, how would you characterize that today versus when we saw -- or we attended ICSC in May or we saw you in June?

Yes, it continues to be rock solid. I mean, if you think about, we're 83% grocery-anchored right now. So there's still a lot of white space for us. When you think about the size of our portfolio, and even though 83% is a good number. We're looking at doing portfolio deals with the Sprouts of the World, the Trader Joe's of the World. It's interesting to see Amazon come back with their announcements sort of reopening Amazon Fresh deals. I think they should lean into their Whole Foods banner, but they're aggressive on the Whole Foods expansion as well. The Ethnic Grocer's continue to be very strong operators and continue to want to grow. We've done a number of deals with them and continue to like what they bring in terms of not only the customer and drawing from a wider trade area, but the co-tenancy, you're able to drive significant rent premiums with co-tenancy there. Off-price continues to be white hot. I mean if you think about what's really working today, it's the treasure hunts. It's amazing to see we have that Bridgehampton asset going out to the Hampton's. And I think there's some type of viral clip almost every week of people going into TJ Maxx and finding a designer handbag for 75% off type of thing. It's incredible to see sort of how the department store of today has totally changed. And it continues. We used to have this graph in our investor deck that it show the market cap of department stores 20 years ago, 10 years ago, 5 years ago, and today against the off-price sector and talk about just absolute domination of off-price. It's been phenomenal. And obviously, when you combine the grocery anchor that drives traffic multiple times a week with that treasure hunter off-price retailer, that's that sweet spot that generates repetitive trips, cross shopping. We have data that showcases, which retailers generate the most cross-shopping throughout your shopping center, and then a void analysis of what's missing in the trade area, in a lot of ways where the heartbeat of these downtowns. And we want to be sure that we're giving the consumers what they're looking for. And I think that's where I think Kimco has continued to thrive, in making sure that we understand what's the right merchandising mix, what's going to drive more sales, what's going to add more value?

Great. I know we're out of time. We have 3 quick rapid-fire questions, if you don't mind, rapid responses, please.

Okay. Do you expect real estate transactions to increase once the Fed starts to cut? Yes, or no? And if...

Yes.

When do you expect them to pick up fourth quarter this year, first half '25 or second half '25?

I think it will be fourth quarter.

Okay. How would you characterize demand for space today, a, improving; b, steady; or c, weakening?

Continuing to be improving, I think.

Okay. And finally, how would you characterize your AI spending plans over the next year higher, flat or lower or higher?

Higher.

Great. Thank you very much team to the Kimco team.

Thank you.