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Kimco Realty Corp (NYSE:KIM)
Q3 2020 Earnings Call
Nov 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Kimco's Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

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

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Good morning, and thank you for joining Kimco's Third Quarter 2020 Earnings Call. The Kimco management team participating on the call today include Conor Flynn, Kimco's CEO; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, our CFO; David Jamieson, Kimco's Chief Operating Officer; as well as other members of our executive team that are also available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward-looking. 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 certain reference to some non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in the Investor Relations area of our website.

With that, I'll turn the call to Conor.

Conor C. Flynn -- Chief Executive Officer

Hello, everyone, and thank you for joining us. Today, I will give updates on how, as one of America's largest owners and operators of open air, grocery-anchored shopping centers and mixed-use assets, our strategy is enabling us to successfully navigate and actively manage our portfolio to offset the impact of COVID-19, how we see the evolving retail landscape, and how we are keeping focus on our longer-term objectives for creating sustainable growth and shareholder value. Ross will cover the transaction market and Glenn will discuss our performance metrics. Both our short- and long-term strategies shared two overlapping principles within the evolving retail landscape. First and foremost, Kimco's product type, open air, grocery-anchored shopping centers and mixed-use assets in well-located markets are where retailers want to be and consumers want to go. We see it in our traffic data, our leasing pipeline, and highlighted as the product of choice by retailers on their respective earnings calls. This reality has become even more pronounced during the pandemic, where, as I will discuss shortly, the open-air format is so conducive to both online and physical delivery.

Second, but no less important, is that the last mile store is more critical than ever to the retailer supply chain, acting as a hub for profitable distribution and fulfillment as the demands and needs of the consumer continue to evolve. With these core principles in mind, our short-term strategy is simple, block and tackle, collect and lease, assist our tenants, and tenaciously stay on top of our costs. The good news is that we have been focused on this strategy for quite some time, well before the onset of the pandemic. So our team has been ready, tireless and efficient in executing on it. And our results reflect these efforts. While Glenn will provide more detail, our portfolio has remained resilient during the pandemic, with occupancy currently at 94.6%. We are seeing a pickup in leasing demand, and our leasing pipeline is starting to build to a level we experienced pre code. We anticipate a faster recovery for anchor occupancy versus small shops and for essential retailers versus nonessential ones. Of particular note, our strategy to focus on grocers has been spot on, as grocery anchor demand for space is surging. Over the past five years, we have upgraded Kimco's portfolio from 64% to 77% grocery-anchored and have outlined the strategic plan to reach 85% to 90% grocery-anchored over the next five years, with over 10 new grocery opportunities currently in negotiation. In addition to growth in grocery demand, e-commerce sales across our retailer Rolodex has exploded and created a powerful halo effect on our existing store locations. Driven by changing consumer demand, the need to improve margins in data analytics, our tenants are transforming their store operations and expansion plans to include shipping and fulfillment.

Tenants like Target, Costco, Walmart, Best Buy, Home Depot, Lowe's, Dick's, and many others continue to expand omnichannel programs like buy online, pick up in store and curbside pickup. These programs have proven the most cost efficient way to deliver goods to consumers while, satisfying the customers' desire for quick and safe access to products. This is worth emphasizing. We don't believe there is a one-size-fits-all solution to the last mile challenge, and we need to recognize how each retailer determines how best to serve their customer base. For Kimco, helping our tenants to the last mile is one of our highest priorities, and that's why our portfolio and our team are well positioned to retain tenants by helping them optimize their stores to provide for shopping, shipping and pickup. Our dedicated team is also focused on identifying new opportunities and location voids for certain retailers and redevelopment potential. These experienced personnel employ a mix of old school networking and market research and new school data analytics to help tenants find opportunities for profitability and growth. Our overriding philosophy is that retailers are our partners. By listening to their concerns, engaging with them and helping them maximize the profitability of their space, Kimco continues to be their partner of choice. Perhaps hit the hardest are small shop tenants who often simply do not have the resources to hang on. That's where Kimco continues to step up. Unwilling to wait to see who will stay or go, we are in daily dialogue with our retailers to listen to their needs and challenges, and to see how we can partner to help them navigate the situation. Our Tap Tenant Assistance Program initiatives have been a welcome sight for these tenants. Whether we help tenants pay for legal costs, provide health and financial information on our website, locate vendors to facilitate tenant acquisitions of outdoor heaters or expand our national curbside pickup program, we are letting our tenants know we are in this together as they fight to continue for success. We can't save every tenant, but we can do our part to make sure we help those that want or need a fighting chance.

As the world learns how to live with the virus, our team is working tirelessly to welcome tenants and customers back to our centers, while making them feel safe in a new shopping environment. In times of crisis, we want to make sure our retailers know which landlord picked up their call and which landlord called them. We are confident in our portfolio, our team, our improving rent collections, our liquidity position and our balance sheet. At a time when many are looking for rescue capital to help carry them through this disruption or to bolster their balance sheet, Kimco's sector-leading liquidity puts us in a unique position. Our ability to monetize a portion of our investment in Albertsons, which currently sits as a marketable security worth over $550 million, is a clear differentiator and gives us tremendous optionality in the future. I continue to be humbled and impressed with how our team at Kimco has rallied around our strategy to navigate the COVID challenge and how they are also able to focus on the long-term as we position Kimco for the future. As for the long term, we continue to add to our war chest of entitlements and believe downturns are often a great opportunity to expedite them as local governments are often more willing to accommodate these projects. We believe our five-year goal of securing 10,000 apartment units is certainly achievable and that these entitlements can provide future opportunities to unlock embedded value.

Our development and redevelopment pipeline is now at a five year low. Similarly, in the transaction market, we continue to witness a wide disconnect between the public and private valuations for well-located grocery and home improvement anchored open-air shopping centers. Open air centers in our well located areas of concentration continue to trade at a cap rate range of 5% to 6%, which is clearly at odds with our current valuation. While purchasing our core product does not make economic sense given our current cost of capital, we also outlined our capital allocation strategy for the next year and how we plan to invest accretively by taking advantage of the lack of liquidity in the commercial lending market. In closing, our consumers are comfortable with the shopping center experience. Together with our tenants, we make the shopping center a safe and easily accessible destination for goods and services.

We know we have the right assets, a diverse tenant geographic mix, a strong balance sheet and the entrepreneurial spirit to not only survive but thrive during this pandemic. Ross?

Ross Cooper -- President and Chief Information Officer

Thank you, and good morning. Following up on Conor's commentary, we continue to see aggressive pricing for high-quality, primarily grocery-anchored product, albeit at a much lower transaction volume. Multiple trades occurred in the third quarter throughout the country at sub minus 6% cap rates in Pennsylvania, Northern California and Florida, with another high-quality asset trading in Los Angeles at a sub-5% cap rate. For the right location and tenancy, there is still strong demand and an abundance of capital available. The biggest impediment to deal volume is the continued pullback in the market from the traditional lending sources. With cash flow uncertainty and general concerns stemming from the pandemic, it has never been more important to have strong sponsorship, quality tenancy and substantial liquidity. And as Conor alluded to, we see that as a tremendous differentiator and opportunity for Kimco. With our cost of capital elevated and institutional quality property cap rates remaining at all-time lows, there is a clear disconnect between public and private pricing, making it difficult for us to identify and acquire traditional retail centers accretively. So for now, we will continue to remain disciplined. However, we do expect the pricing dislocation to eventually change. And when it does, we will be opportunistic where we can invest capital at a spread to our cost, while getting our foot in the door on prime locations that match our view of quality and downside protection. While the traditional acquisition market remains stalled, we are seeing and evaluating opportunities to provide either preferred equity or mezzanine financing on infill core MSA locations with strong tenancy and existing sponsorship. These owners need value-add capital to either redevelop the asset with signed replacement leases in place or bridge the gap on refinancing an asset that has a near-term debt maturity. Historically, this would have quickly and easily been funded by traditional lenders or CMBS. In this environment, finding that additional financing is not as easy, and we have sourced a few great assets where we can provide assistance.

As part of our investment approach in this area, we seek a right of first offer or right of first refusal in the event the owner looks to sell the property. If the asset performs as expected, we collect a double-digit return and get paid off in a relatively short hold period. If the downside scenario occurs, we ensure that we have conservatively underwritten the properties so that we're very confident stepping in and owning or operating the asset at a comfortable basis of less than 85% current loan-to-value. Given current market conditions and the expectation that it will remain this way into 2021, we anticipate this deal structure will become a key component of our investment strategy next year. While the instances of these deals are still infrequent as we sit here today, our expectation is that the opportunity set will substantially increase into next year, as lenders start to realistically assess their existing collateral and prepare to take necessary impairments on their balance sheets. As always, we will be judicious with our capital and selective with how we deploy it. That said, we do believe this program can unlock attractive yields and potentially add desirable properties to the future Kimco portfolio.

With that, I will pass it along to Glenn for the financial summary.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Thanks, Ross, and good morning. Our third quarter operating results have improved as compared to the second quarter, with higher rent collections and lower credit loss. We are also opportunistic in the capital markets and have further extended our debt maturity profile. For the third quarter 2020, NAREIT FFO was $106.7 million or $0.25 per diluted share, meeting first call consensus, as compared to $146.9 million or $0.35 per diluted share for the third quarter 2019. The change was mainly due to abatements and increased credit loss of $28.3 million as compared to the third quarter last year. Credit loss recognized in the third quarter 2020 was a significant improvement from the second quarter 2020 credit loss of $51.7 million. Our third quarter FFO also includes a onetime severance charge of $8.6 million or $0.02 per share, related to a voluntary early retirement program offered and the organizational efficiencies from merging our southern and mid-Atlantic regions. We also incurred a charge of $7.5 million or $0.02 per share from the early redemption of $485 million of 3.2% unsecured bonds, which was scheduled to mature in 2021. A year earlier, in the third quarter 2019, we had a preferred stock redemption charge of $11.4 million or $0.03 per share. Although not included in NAREIT FFO, we did record a $77.1 million unrealized loss on the mark-to-market of our marketable securities, which was primarily driven by the change in our Albertson stock. We also sold a significant portion of our preferred equity investments, which generated proceeds of over $70 million and net gains of $8.4 million, which were also not included in NAREIT FFO. With regard to the operating portfolio, all our shopping centers remain open and over 98% of our tenants are open and operating. Collections have continued to improve from the second quarter 2020 levels. We collected 89% of base rents for the third quarter, including 91% collected for the month of September. This compares to second quarter collections, which improved to 74%. In addition, we collected 90% for October so far.

Furloughs granted during the third quarter were 5%, down from 20% from the second quarter. Our weighted average repayment term for deferrals is approximately eight months, and will begin to be repaid meaningfully during the fourth quarter 2020. Thus far, we have collected 87% of the deferrals that were billed in October. Now let me provide some additional detail regarding the credit loss for the third quarter 2020. We recorded $25.9 million of credit loss against accrued revenues during the third quarter, which included $17.1 million related to tenants on a cash basis of accounting. There was also an additional $4 million reserve against noncash straight-line rent receivables. As of September 30, 2020, our total uncollectible reserves stood at $74.8 million or 39% of our total pro rata share of outstanding accounts receivable. Total uncollectible reserve of $45.8 million is attributable to tenants on a cash basis. At the end of third quarter 2020, 8.4% of our annual base rents were from cash basis tenants. During the third quarter, 51% of rent due from cash basis tenants was collected. In addition, we also have a reserve of $25.8 million or 15% against the straight-line rent receivables. Turning to the balance sheet. Our liquidity position is very strong, with over $300 million of cash and $2 billion available on our revolving credit facility, which has a final maturity in 2025. We also own 39.8 million shares of Albertsons, which has a market value of over $550 million based on the closing price of $13.85 per share at the end of September. Subsequent to quarter end, Albertsons declared a dividend of $0.10 per common share, and we expect to receive $4 million during the fourth quarter. We finished the third quarter with consolidated net debt-to-EBITDA of 7.6 times.

And on a look-through basis, including pro rata share of JV debt and preferred stock outstanding, the level is 8.5 times. This represents essentially a full turn improvement from the 8.6 times and 9.4 times levels reported last quarter, with the improvement attributable to lower credit loss. We expect further improvement next quarter as well. We were active in the capital markets during the quarter as we issued a 2.7% $500 million 10-year unsecured green bond and a 1.9% $400 million 7.5 year unsecured bond. Proceeds were used to repay the remaining $325 million on the term loan obtained in April 2020, fund the early redemption of the 3.2% $485 million bonds due in May of '21 and fund the repayment of two consolidated mortgages totaling over $70 million. It is worth noting that our credit spreads have continued to tighten since the issuance of these bonds, with the 10-year bond trading more than 40 basis points tighter. As of September 30, 2020, we had no consolidated debt maturing for the balance of the year and only $141 million of consolidated mortgage debt maturing in 2021. Our next unsecured bond does not mature until November of 2022. Our consolidated weighted average maturity profile stood at 11.1 year, one of the longest in the REIT industry. Regarding our common dividend during 2020, so far, we have paid $0.66 per common share, including a reinstated common dividend of $0.10 per common share during the third quarter 2020. It remains our expectation to pay cash dividends at least equal to 2020 REIT taxable income. As such, we expect our Board of Directors will most likely consider declaring and paying an additional common dividend during the fourth quarter.

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

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Rich Hill with Morgan Stanley, please go ahead.

Rich Hill -- Morgan Stanley -- Analyst

Hey. Good morning guys. First of all, kudos for providing a cash flow statement. I think that's best-in-class, and I wish your peers would do it as well. I do want to focus on the cash flow statement because I think it's really important and provides a tremendous amount of transparency in a market like this. And it looked like to us, there was a real nice cash flow ramp that maybe isn't even captured in the FFO numbers, which looked pretty much in line, but the cash flow ramp looked really impressive. Can you maybe just back up and help us understand what's driving the cash flow ramp? Is it collection of deferrals? Is it less bad debt? Is it rent collections? Is it all of the above? Or is there one thing that we should specifically be focusing on as we think about modeling?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Rich, it's Glenn. I mean, clearly, during the third quarter, you have rent collections that are much higher than where they were during the second quarter and you have a much lower reserve number. The reserve number is over $10 less. There is also some -- there are some timing things that come into play also, the timing of when you're paying bonds and things like that. So you have payables, and that move around a little bit. But the bulk of the increase is really driven by really the rent collection increase.

Conor C. Flynn -- Chief Executive Officer

There wasn't much deferral collection in Q3. We'll see that ramping in Q4.

Rich Hill -- Morgan Stanley -- Analyst

Got it. And just one question on the deferral and then I have one more final question. Did you say 87% of deferrals granted in October have already been collected? Did I hear that right?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Yes. 87% of what we billed, so the deferrals that we billed in October, 87% of those deferrals have been paid.

Rich Hill -- Morgan Stanley -- Analyst

Got it. And then, Conor, maybe this is a question for you. But as you think about where you stand today and as of the end of 3Q versus where you stood in 2Q '20, that cadence of recovery back to whatever normal is, but let's call it 1Q '20, do you feel like you're on track? Do you feel better than where you did previously? How -- can you just walk us through sort of your sentiment on the recovery to normal?

Conor C. Flynn -- Chief Executive Officer

Yes. Rich, happy to. I think when you look at back in Q2 and what we talked about with our Board, the trajectory of how things could play out, and we gave a multiple different scenario to them, we feel that we're trending toward that A, B scenario versus the C, D scenario. And I continue to think where we're trending in between the A, B, if you look at our collections and you look at the leasing volume and you look at the retention rate and the collection on deferrals, the collections on the portfolio. We've done a lot of work over the past few years to put ourselves in a position to be a high-quality owner to be a landlord of choice, and I think it's starting to shine through on the portfolio metrics. And so there's a lot of unknowns, obviously, still to come. But we feel like the trajectory is right about in between that A, B scenario that I mentioned before.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Yes. And if you -- it's Glenn again. If you think about what you've seen, right? We had $0.37 of FFO in the first quarter. That was relatively a normal quarter where we were. Obviously, the second quarter was the hardest hit. We were at $0.24. And if you think about the third quarter, if you take out the onetime charges of the severance and the early repayment of the debt, we'd really be at $0.29. So you're seeing that ramp. And it really has to do with the fact that rent collections are improving and reserves are decreasing. So if the trend continues into the fourth quarter, we expect to see further improvement from there.

Operator

The next question comes from Juan Sanabria with BMO Capital.

Juan Sanabria -- BMO Capital -- Analyst

Hi. I was just hoping you could spend a little time on the bad debt, and kind of help us think about how that's trending. What's been the key variable in decreasing? Obviously, the amount of collections have improved. But I think, in particular, with the Street would be interested in kind of expectations for the fourth quarter. And maybe just some insights into the accounts receivable past due. How the different buckets are shaping out 30 days, 60, 90 days? Just to give us a sense of what to expect going forward.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

So let me try and answer it a little bit. I tried to address it in my prepared comments. If you think about where we are, collections have certainly improved. If you look at where -- what we've reserved so far. So we reserved -- when we think about our total outstanding receivables, 39% of that number has been reserved. Again, if collections continue to improve, if it's going to be somewhere in this low 90s range, then we would expect reserves in the fourth quarter would be less than what they were in the third quarter. So again, as we were saying earlier, we're seeing improvement. But again, it is premised on the fact that rent collections continue and that we don't have another round of shutdowns. In addition, we have started to billed some of the deferrals and the deferral collection, as I mentioned, was 87% for what we billed in October. So if that trend continues, again, we think that's another positive. It is going to depend on the rent collections.

Juan Sanabria -- BMO Capital -- Analyst

Great. And then just on the whole omnichannel e-commerce and the groceries that, Conor, you mentioned trying to ramp up that exposure there. Just trying to think about, how are you guys able to monitor and track what's going on via the omnichannel or e-commerce side of the business versus what's going on in the four walls and making sure you get your fair share? I know it's been something that's been discussed for a while, but you're seeing more of the grocers dedicate space to online pickups. Just trying to see how you guys are thinking through that as -- particularly as you try to increase your exposure to the groceries over time.

Conor C. Flynn -- Chief Executive Officer

Yes. Sure. I think one thing you have to remember is the lion's share of our rents are fixed rents. So we don't really have the percentage rent clauses that some of more of the mall type landlords would be accustomed to. So even though we are focused on helping our tenants maximize their sales within the four walls, even though we'd love for them to be able to count the omnichannel sales as part of the 4-wall profits, which they're starting to do in many cases, we wouldn't necessarily participate in that upside. It just gives more value to the lease that they have with us because they're more profitable out of that box. And so what we have done is focused on curbside pickup, focused on making sure that they optimize their store that it becomes more of a fulfillment and distribution point. In our dialogue with them, we go through space by space within our portfolio and analyze which stores are already optimized and which ones need a reset to be able to fulfill and distribute from that store.

And the nice part is the lion's share of our anchor spaces have already optimized their stores. There are a few that are lagging a little bit behind. But the blueprint is out there, and that's why we're being very proactive and very aggressive talking to our retailers to make sure that they know that, as a landlord, we will co-invest with them to optimize those stores, making sure that they see what we've done on the curbside pickup program that we want them to do inside their four walls.

Operator

The next question comes from Greg McGinniss with Scotiabank.

Greg McGinniss -- Scotiabank -- Analyst

David, I wanted to dig into leasing a bit more. Given the large footprint of the portfolio, are you seeing material differences in leasing productivity based on geography? For example, if you give some insight into rent spreads in the Northeast versus the south, or really any other insights, that would be appreciated.

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Yes. Sure. No problem. Appreciate the question. So as we went through Q3 and looking ahead into Q4, we are starting to see a healthy improvement in the deal pipeline and the volume of new activity. As Conor mentioned in his prepared remarks, we anticipate that the anchor well capitalized tenants will be the front-runners in that expansion. They're utilizing this opportunity, similar to the Great Recession, to expand their market share, upgrade the quality of their portfolio. And really double down in locations where they've seen great production, and realizing as well that being closer to the customer is a value to them. And so we've seen that with off-price. We've seen that with grocery. Ironically, actually, discount, lower cost fitness has taken this opportunity despite the distress of that sector to look at opportunities to expand as well. On a geographic basis, it's pretty well evenly spread. We've seen both the Northeast, the South and the West Coast start to really accelerate their deal flow, even on the small shop side with the well-capitalized tenants, the corporate tenants and some of the franchisees that are looking to expand.

So it's pretty well balanced. As it relates to spreads, it's always a quarter-by-quarter item related to which deals qualify for comp spreads. So you're always going to see some movement related to that. And a spread number could be driven by one or two individual deals, either up or down. So -- but generally speaking, when we look out and we saw the high levels of retention this past quarter as well between renewals and options, which are very much in line with our historic rates, we felt really confident that the quality of our portfolio is clearly a benefit to these retailers. Again, this is the opportunity where a retailer has a choice. They can either renew, exercise or option or look elsewhere. And fortunately, they've chosen to stay. And they say that when you look at our spreads related to renewals and options, they're in the high single digits, which is sort of the high watermark of our historic trends as well. So we're cautiously optimistic and encouraged by the activity, but we have to stay extremely focused and be out in front with these retailers to ensure that we're part of their expansion plans.

Greg McGinniss -- Scotiabank -- Analyst

And then maybe shifting gears a little bit. Glenn, with the 87% deferral collection in October, just curious how that tracks against your expectations on payback and what's been reserved against on the deferral side.

Conor C. Flynn -- Chief Executive Officer

So our total deferrals during the third quarter, there's a reserve of 29%. In terms of the 87% collection, again, I think we -- it's pretty much in line. We thought it's probably right around where we thought it would be, maybe around 90%. And we're not done. It's just as we sit here today, that's what we've collected so far. So it should improve a little bit further. But again, most of the tenants that we've provided those deferrals to were tenants we thought we would be able to collect from for the most part, large or high quality tenants. So that seems to be coming through here.

Greg McGinniss -- Scotiabank -- Analyst

Okay, thank you.

Operator

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

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everybody. Good morning. Thank you. You guys are in an enviable position regarding liquidity and flexibility. And in this environment, as we appear to be emerging from, hopefully, the worst of the pandemic, when do you shift to offense? And thank you for the opening color on private markets still being somewhat frozen and likely persisting into 2021. So when it comes to capital priorities for Kim, how are you favoring the mezzanine loans Conor mentioned, ramping redevelopment, continued deleveraging or potentially buybacks?

Conor C. Flynn -- Chief Executive Officer

Sure. We can divide and conquer that question. I think there was a lot in there. So look, for -- as we outlined earlier on our capital allocation strategy, we get our daily cost of capital, and obviously, our cost of capital is extremely elevated in this time. And it makes buying our traditional product type, our grocery-anchored shopping center in our top 20 mega markets almost off the table in many ways because it just doesn't even come close to meeting our cost of capital requirements. So what we found is that there are opportunities to provide rescue capital or transformational capital where high-quality real estate is in the midst of a redevelopment or it's in the midst of a refinancing of a construction cost coming out for permanent financing, and they don't have the full vote to be able to cover the refinance. And so that's where we can come in with some strategic capital to exceed our cost of capital and get our foot in the door if that asset were ever to trade. That's where we see our unique set of investment opportunities in the near term. We continue to prioritize leasing. We continue to think that, that is going to be number one, number two and number three for us as where our capital is going to go. We do have a tremendous amount of dry powder, but we want to make sure we are careful. We're still not through the pandemic.

I think today, we just hit over 100,000 cases. So we clearly recognize that we're going to have an elevated amount of cash on the balance sheet going forward just to continue to give ourselves plenty of cushion. We pushed out our debt maturity profile, as Glenn mentioned. We continue to survey the landscape for opportunities. We have a lot of deep-pocketed investors that want to partner with us. And so we continue to monitor the situation, but recognize the fact that we have to batten down the hatches, lease like crazy, get our cash flow back to where we think it should be and then continue to mine for opportunities. As we've done in the past, when the tide goes out, we have been opportunistic. And there's been a lot of kicking of the can by lenders, and we're being patient to see when people start to face the music.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Yes. I would just add to -- I think Conor covered most of it. But the way that we envision this program and given the, as you quoted, enviable liquidity position, we do believe that this program is still playing offense, albeit at a different way than we've done it historically. And the nice thing that we really like about this program and the differentiator for Kimco is the fact that, as I mentioned, there's still an abundance of capital for the grocery-anchored institutional quality type assets. And given the fact that there's still a lot of demand for that product with our elevated cost of capital, it makes that program extremely challenging. The differentiator for Kimco on the preferred equity and mezzanine program, mezzanine financing program that I mentioned, is that there are very few high-quality operators like Kimco that have the liquidity to play in that space. So when we find ourselves on these few examples that we're working on going up against potential competition, it's hedge funds, it's more opportunistic debt platforms. So when Kimco steps in, with our track record and our ability to operate in the event that the downside scenario comes into play for the senior lender, they very much welcome Kimco's participation. So we found it to be a very nice fit, while also hitting our elevated yield hurdles. So it's a very nice balance that we think could be a great place for us to put out accretive capital in '21.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. Great. Great color. And then leasing, leasing, yes. So it's been a real bright spot. So I'll just continue with that. And not just for Kim, but even for other peers that have reported. So it's obviously encouraging and really ahead of what our internal plans and thoughts were outside of normal cyclical recession impacts that everybody kind of understands or believe they understand. Are there any positive secular trends that may be at play here since leasing seems to have popped back, pushing close to near pre-COVID pipeline levels?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

In terms of trends, I look at sort of what retailers are doing today and sort of what does that lead us, how does that lead us into the future and what new opportunities will emerge as a result. To the credit of the retailers, they're extremely innovative. They continue to see how the customer is changing, how their needs of their store format and footprint are changing. Obviously, we've talked about omnichannel for years now. So in our dialogues with the retailers, we're just continuing to see that evolution play itself out, and what that's creating our multiple store formats for grocery stores or off-price or others that are starting to appreciate the use of, say, micro fulfillment or distribution out of the store, trying to penetrate maybe more urban areas, so they're shrinking the size of their footprint. But also then appreciating as a result of this online distribution that in some locations, they actually need to now expand the footprint. So the dialogue is pretty well balanced between optimizing it for efficiency and smaller to expansion or in larger to address this fundamental need. And so these are all trends that, again, they've been playing themselves out. I think COVID itself has just accelerated what was already in process. And so it pulled that forward by a few years. Curbside, for example, we've talked about for years.

Overnight, it was a necessity, and we deployed it at over 300 centers to support that effort. So I think we'll just continue to see the emergence of a lot of the trends that have been sort of in its infancy, continue to expand and grow. For us, that's really encouraging, and that's exciting to be part of that process. How do we continue to work with them, to innovate and change? And now more than ever, the retail partnership between us and them, and then the retailers to retailers is so important because we're all servicing the same end customer, which is that shopper, and how to create the best experience for them.

Conor C. Flynn -- Chief Executive Officer

But the only thing I would add is that we are watching a pretty significant demographic and population shift out of the major metros to like that first and second ring, which is where our assets are located. So we are cognizant of the fact that some of it might be short term, but I think a lot of it may be long term, where we stand to benefit from the increase in population and migration. And I think that bodes well, not only for the retailer demand for our space, but also the redevelopment potential for our shopping centers long term. When we talk to our retailers, they are very clearly weighing their expansion plans to that first and second ring, which is where our portfolio is positioned. So I think we are positioned well for both the short-term and the long term.

Operator

Thank you. The next question comes from Michael Bilerman with Citi. Please go ahead.

Michael Bilerman -- Citi -- Analyst

Christy McElroy on here with me as well. I had one question for Conor and one for Ross. Just maybe starting with Conor. You talked about sort of this grocery penetration in terms of lifting it to that 85% to 90% level from the high 70s today. And you talked about having 10 grocers that you've either leased or closing to lease to start your way to that level. And I want to know, as you think about going from 77 to the high 80s, how much of it is adding grocers, and I don't know if you have to add like 40 grocers, how much of it is selling assets that don't have grocery potential? And then maybe you can sort of dig into those 10 leases that you're doing because I would assume those are new grocer boxes, how do the terms of those? How are they being built out? What type of excess land are you attaching to them for curbside? Just as we enter this new world of new leasing, I sort of want to see how different it is versus the past or how similar it is relative to the past.

Conor C. Flynn -- Chief Executive Officer

Yes. It's a good question, Michael. So -- and Dave can chime in as well on the leasing side. But on the 85% to 90% target over the next five-plus years, it is a fixed portfolio, so we actually don't have a disposition number in that. So it's literally just leasing up two grocery stores on an asset that doesn't currently have a grocery anchor. Obviously, if we do take on a little bit more dispositions in time of non-grocery anchored assets, that may boost it even further. But I was just looking at the existing portfolio today and wanted to know which of our assets lend themselves to grocery repositionings. And Dave and his team have outlined the path to get to that 85% to 90%. And then on the deals in the pipeline, Dave can give a bit more color on that.

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Yes. So in terms of the conversion of the boxes, it varies case by case and what the needs are. For example, the Lidls and the Aldis of the world are targeting a smaller footprint. Sprouts, in the not too distant path, had modified their footprint from 30 down to sort of that mid-20 range. But they're still being very aggressive in looking at anything within that square foot category. So they can grab market share and be flexible and adapt to the needs of the customer. And then when you go into the larger-sized formats, you talk about the Krogers, the Albertsons of the world, and what they're doing, they're still very much in that larger format, the 40,000 to 60,000 square foot range, dependent on the brand. And they're really accelerating the use of distribution and fulfillment out of the store. So in terms of having to modify the shopping center to accommodate those needs, there's not a massive change or transformation in the dialogue because we're able to accommodate curbside today as we were yesterday.

There may be some modifications to expansion or contraction of the footprint depending on the grocery themselves. In terms of deal structure, it can vary between a ground lease scenario, lower rent, lower cost to something that's more capital intensive. And we just look at the economics to determine what makes the most sense. But I wouldn't say there's been anything that's been materially different aside from just obviously the growing demand. And when you think of the grocers, to their benefit, they've had this surplus of cash that they've received as a result of COVID and the necessity of grocery and the stay at home trend. And so fortunately, they're able to now to use that cash surplus and really make the investments that they were either targeting and now can pull forward or they're already planning to do and just continue to strengthen their position in the market and the service offering to the customer.

Michael Bilerman -- Citi -- Analyst

And then, Ross, I want to come back to this press mezz program that you've been talking about. And you sort of quoted, you said double-digit returns and an 85% LTV sort of mark to leave it at the borrower default on that, that's where you'd be in the cap structure. And I just wanted to better understand sort of the double-digit return that you're talking about. How much of that cash pay upfront, how much is picked, how much may be an amortization of fees or structuring? Because a double-digit return seems quite -- it's good, but it seems quite high relative to probably how those assets are performing from a cash flow perspective to be able to generate that type of return for Kimco.

Ross Cooper -- President and Chief Information Officer

Yes. No. Absolutely. And what we've seen thus far, there's certainly no one-size-fits-all. These deals are all a bit unique with various dynamics that are occurring. The few deals that we've seen that we're working on currently do have a majority of that double-digit return that is paid current. And there is plenty of cash flow currently within those assets to support that with the remainder that will accrue and be paid pick. When we look at these deals and why the borrowers or the partners are willing to pay that return is really because they're not in a position where they need to or really want to sell the asset today. It is much more challenging to negotiate an acquisition price and see the capitulation between buyer and seller to acquire the site outright versus them expressing a willingness to pay a somewhat elevated interest rate on a small piece of the capital stack that they view to be short term. And as I mentioned in many of these cases, it's for a very specific purpose. So one of the transactions that we're working on right now is a former Sears Box, where there's $25 million of capital needed to redevelop that part of the property with executed leases with TJ Max Burlington and 5 Below. Now historically, that would have been funded by a construction loan at a relatively inexpensive rate.

Today, it's much more challenging for the borrower to find that. So they're willing to pay a double-digit interest rate for that redevelopment because the value creation that will occur once that's completed is far in excess of the short-term high interest rate payment that they have to pay to us. So that's just one example of where we're seeing it. Another example is on a very high-quality asset that was just recently constructed, urban location, New York metro. And there is a construction loan that once it was put in place was at a much more comfortable LTV than what the lender believes it is today. So as that construction debt is maturing, we're coming in with a $10 million to $12 million piece to bridge the gap between where the new permanent financing is coming in and where we can help them take out the rest of that construction loan. So again, it's a asset that we understand to be extremely high quality, with tenancy that we know will perform in any part of the cycle or mid-pandemic, post pandemic. But just that additional capital to bridge the gap is not there in the environment today.

Michael Bilerman -- Citi -- Analyst

And should we expect like, I don't know, $200 million, $100 million? What should we expect in terms of deployment for this?

Conor C. Flynn -- Chief Executive Officer

Michael, it's really too early to tell because we're not sure the size of the opportunity set. And so what we've done is we've aligned ourselves with a number of partners that would like to align themselves with Kimco because of our underwriting and capabilities to manage the property in the worst case scenario. But we're starting to see a drift in. We thought it actually would come sooner, but we're being patient and we're waiting for these opportunities. So for now, anyway, it's sort of a case-by-case scenario where we're being disciplined in looking at what could this look like. We're not sure yet.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Yes, I think the word that really does come to mind, and Conor just said it, is discipline. We're working on two of these deals right now. We've passed on dozens. So at the end of the day, it doesn't differ from our core acquisition strategy in the sense that we are going to be very focused on the underlying real estate, very focused on the downside scenario. And if we have to come in and step in as an operator and own this, that we're very comfortable having that become a part of the Kimco portfolio. It's not a program to chase yield. It's a program to get a very attractive yield, but get our foot in the door on high-quality real estate that we would be very comfortable and happy to own if that scenario played out.

Michael Bilerman -- Citi -- Analyst

Okay, thanks.

Operator

Thank You. The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, morning out there. Just sort of following up that -- the line of questioning. Conor, you guys have spent a lot of time and a lot of hours, mental time to simplify Kimco, to get it back to sort of a pure-play shopping center company with straight up direct ownership, unwinding all the AUM and all the stuff that went on the prior preceding cycle. As you guys think about whether it's acquisitions directly, which I don't know if you would consider bringing in JV capital, or doing mezz and preferred, how do you view that versus the -- all the efforts that you guys have done to make Kimco a simple business model? It would seem like some of this would add complexity back, that you guys spent a lot of time to make more as a pure play.

Conor C. Flynn -- Chief Executive Officer

It's a great question, Alex. I think when you look at the current portfolio of assets and you look at Kimco's strategy going forward, you recognize how simplified the strategy is, how transformed the portfolio is. And that will continue to be really the lion's share of the cash flow growth and where the execution is focused. Ross has been mentioning a pretty unique set of circumstances in time where we see an opportunity for Kimco to take advantage of the disruption. And we've always tried to be opportunistic investors in midst of disruption. And so the key for us and the differentiation between -- in the past is we're underwriting the real estate, that's our core competency.

We're underwriting grocery anchored real estate in high barrier to entry markets that we feel would be a Tier one asset for Kimco for the long term. So it's a way for us to get a foot in the door. It's a way for us to invest accretively. And it gives us, I think, a unique set of circumstances to take advantage of the situation, but we know that these coupons are not long term. These are real short-term opportunities because of a lack of liquidity. And we continue to focus long-term on our strategy of owning and operating, redeveloping and creating value, leasing like crazy on our Tier one portfolio going forward. But the investment strategy for this period of time with disruption, we think we've found a nice niche for us to create value, but it's value on our core product, which is, I think, the key differentiator for us.

Alexander Goldfarb -- Piper Sandler -- Analyst

Look, I agree. I mean, you guys have been successful with the retail front. But I'd point out, like if you look at what SL Green has done, I mean, they've been incredibly successful, and yet the market doesn't really give them credit. So it would seem like this business is maybe something that's good for like a small targeted, but just seems like the market sort of pushes back when it becomes anything of size. A second question is just on the tenants. You guys have made a lot of improvements with rent collections. So as you guys look over the next, call it, six months, from a national side and from a mom and pop, do you feel that you have a good handle on who is going to end up being your remaining sort of credit issues? I don't know, on the national side, if that means like fitness or theaters. And on mom-and-pops, I'm guessing that you sort of have a sense of who's going to make it or not. But it just seems like a -- basically, almost 90% rent collections, that you guys would have a pretty good handle on what the ultimate shakeout is going to be from both the national and the mom and pop. So maybe you could just comment on that.

Ross Cooper -- President and Chief Information Officer

Yes. So you're right, Alex, in terms of the collections, obviously, we've been encouraged by that. Heading into the winter months, obviously, creates some unique challenges, especially in the Northeast, that we'll closely monitor. We've been very proactive with our restaurant base. And other service-based tenants that have had to utilize some sort of outdoor facility to help offset the limited capacity indoors. But obviously, as winter sets in, we have to be observing on what happens there. We have a very good pulse on the tenant base that's in our portfolio now. We obviously talk to them on a daily basis and keep very detailed records of their individual situations. So from a tenant disruption standpoint, a credit standpoint, a lot of what we've seen happened as a result of COVID were those that were already in distress, continued to fall into that category, the bankruptcies that were filed. They were anticipated at some point to occur. It just pulled, again, pulled that trend forward.

So -- and I think we've seen the lion's share of that, and Ray can actually speak, I think, a little more detail about it. But what's been encouraging is we've seen a lot of these companies are reemerging from bankruptcy with a stronger balance sheet, right? They've done debt-to-equity swaps and have come out with a reorganization plan that actually enables them to survive into the future. As we go into January, when you think about the next six months, historically speaking, we've typically seen another dip in occupancy in Q1, which happened as a result of post-holiday fallout. That's typical. That's normal. So we'd anticipate that to occur. And then as we get through Q1 and sort of emerge into Q2 '21, I think we start to see the plateauing effect and the growth opportunity there, coupled with, obviously, the continued growth in our new deal pipeline. So that's right, I think we start to see '21 emerge.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you.

Operator

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

Craig Schmidt -- Bank of America -- Analyst

Yes. Thank you. Hi. I'm wondering if the dip in small shop occupancy might represent a trough in 3Q? Or do you think that the occupancy in the small shops could go lower?

Ross Cooper -- President and Chief Information Officer

Craig, great question. I tried to answer it a little bit in the previous question at the end there. We anticipate, again, just based on historic norms, that you'll see probably another dip into Q1 as a result of the post holiday hangover and what happens usually in our portfolio. And then as you move out of Q1 and blend into Q2 and then through the balance of '21, I think you'll start to see that recovery mechanism occur, both from a reduction in the vacates, but more importantly, an increase in demand of the space to offset. So -- and just to put it in context, too. So a lot of -- the majority -- the vast majority of the vacancy that we've seen has been a result of these bankruptcies that were on edge pre-COVID already. So it just again tipped the scales that much further. And so fortunately, the balance of the portfolio, all of these small shop tenants are grinding it out every day. And we're here to support them, and we actively reach out to them to make sure that they have the tools necessary to come out the other side. But that's -- so we expect probably a little bit of a further decline before it starts to ramp again.

Craig Schmidt -- Bank of America -- Analyst

Great. And then for your tenants that are working on being better at fulfillment and distribution last mile, I'm wondering, do any of these efforts require a change in zoning?

Ross Cooper -- President and Chief Information Officer

Great question. It really depends on the scale in which someone is trying to achieve that. So if you're just reallocating some of your square footage within your four walls, but you're predominantly still a retail in nature and functioning as you were prior to this enhancement of your box, most likely not. It's just a matter of reallocation of space. If you're doing a full micro fulfillment center, 15,000 to 20,000 square feet, that may require a use variance or some other means in which you'd have to go to the city and the town to have that as an accepted use, two very, very different stories there and strategy. So right now, I'd say we're talking more about the former, where retailers are just repurposing some of their square footage to meet this demand, but it's not a total reinvention of space.

Conor C. Flynn -- Chief Executive Officer

Craig, I think it's a lot easier for retailers to not go through the rezoning process and to just repurpose portions of their stores to fulfill and distribute. And it's a lot less capital-intensive as well. So we see that, that being the lion's share of what we're experiencing.

Craig Schmidt -- Bank of America -- Analyst

And what we're hearing that Amazon was supposedly pursuing, would that be the latter? Meaning that they might have to get zoning changes for that area?

Ross Cooper -- President and Chief Information Officer

I mean, you know as well as I do, Amazon is trying a whole bunch of stuff in a whole bunch of markets, and they'll continue to run the trial and error to see what sticks and what works best. So it really just depends on what they're doing at any given point in time. I mean we all know that they have multiple different brick-and-mortar verticals right now that they're exploring. So if it's more the sort of the traditional grocery use, then that's a grocery use, if it's something that's more expansive in terms of distribution, then maybe. But it's really case by case, independent on the municipality and the existing zoning that's already in place for the center.

Craig Schmidt -- Bank of America -- Analyst

Great. Thanks for the detail.

Operator

Thank You. The next question comes from Ki Bin Kim with Truist. Please go ahead.

Ki Bin Kim -- Truist -- Analyst

Thanks and good morning. So it was good to see a lot of improvements in your portfolio, including collections. As you start to think about a more sustainable dividend policy, what are the things that you're looking at? And any kind of guideposts that you can provide?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Sure. Ki Bin, look, we set the dividend and reinstated it at the $0.10 level. First and foremost, we're going to focus on just making sure we attain our retaxable income requirements for 2020. And then as we roll up our budgets and look at cash flows for 2021, we want to establish really a set -- a level set dividend that is sustainable and growable. And with that, we want to be somewhere around no greater than 80% of AFFO, probably a little less than that. But it's also going to have to be managed with what retaxable income is. But in terms of target, it's really in the 70% to 80% AFFO level.

Conor C. Flynn -- Chief Executive Officer

Yes. Ki Bin, I think you've seen our Board be very involved in the dialogue and the analysis of our cash flow, on the AFFO and what we want to do going forward. We want to be, as Glenn said, in a position of strength, where we have a lot of free cash flow after dividend, where we can reinvest and retain. And so we're in a position where you're starting to see that free cash flow pretty significantly grow from where we are. And then we'll monitor the REIT taxable income and make sure that the dividend is covering them.

Ki Bin Kim -- Truist -- Analyst

Got it. And going back to something you guys said earlier about the seasonal vacancy that you'll experience in the first quarter, which is quite normal. During this COVID environment, you also had a chance to possibly take that into account in your reserves. With your credit reserves at about 8% of rent, would you say that you've reserved for any kind of potential fallout that might happen in the first quarter? Or is that something you have to revisit later on?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

I would say no. I mean, you have to deal with reserves as they come along quarter-by-quarter. You can't go ahead and put up general reserves for things that you think really happen out in the future. So no, I would say that we don't have reserves built for 2021 at this point.

Conor C. Flynn -- Chief Executive Officer

But the only thing I would comment and add is that, clearly, we're reserving against the tenants that are not performing. And so if you're not performing today and you're struggling through to make it to the holiday season, you're probably not going to make it post-holiday season. So that's something I would add to that.

Operator

The next question comes from Haendel St. Juste with Mizuho.

Haendel St. Juste -- Mizuho -- Analyst

Good morning. So Conor, you mentioned the Board earlier. And I guess a question I have is, as you know, Kimco sent out a survey a few weeks back to the analyst community. And one of the questions I found most interesting was asking us to rank six key financial metrics by how we think the priority of them should be or how we perceive them: price to AFFO; price to FFO; price NAV; same-store NOI; dividend coverage; and debt to EBITDA. So I guess I'm curious how you and perhaps the board are thinking about the prioritization of these metrics and how it informs how you run the business into 2021 and beyond.

Conor C. Flynn -- Chief Executive Officer

Yes. It's a great question. I think our fundamental strategy is pretty consistent pre-COVID and post-COVID. And that is to make sure we have a rock-solid balance sheet, so a lower net debt to EBITDA, that gives us the ability to not only maintain our BBB+ Baa1 credit rating, which is a huge differentiator today. I'm sure you've been well aware that the difference between unsecured and secured borrowing today has never been wider in retail. And we believe that's a big differentiator for us. So in the midst of the pandemic, obviously, the balance sheet is a critical focus and making sure that it is on the path to not only maintaining a strong BBB+ Baa 1, but hopefully putting us in a position of strength going forward to potentially see an upgrade there. FFO growth will be significantly important for us in 2021. There's no doubt about that.

When you look at the leasing momentum we have, when you look at the ability for us to improve collections, the combination of those two with our cash flow growing, that is going to be what really grows the FFO for us in 2021. You got to remember, we did push out a lot of debt maturities, right? So we don't really have a whole lot other than some mortgages coming due that we plan to pay off to really delever. So our growth profile is all about leasing. We have a couple of projects starting to come online as well from the Boliver and from Dania that will help grow our cash flow in '21, but it is all about the FFO growth for us, which is tied to our leasing momentum.

Haendel St. Juste -- Mizuho -- Analyst

That's great. And second question is on I guess the dividend. I guess how does the lack of liquidity in the transaction market play a role in the dividend sizing and how you're thinking about the dividend sizing? Historically, you guys have sold assets to fund redevelopment, pay down debt. And it looks like even net of the -- I think you said $580 million of Albertsons stock, you have your pro forma leverage is still probably somewhere in the mid to high 60s next year. So maybe you could help perhaps with some thoughts on that. And then also remind us on the timing of the realization of the Albertsons capital. How much of that can you liquidate next year?

Conor C. Flynn -- Chief Executive Officer

Sure. I'll take the dividend piece of it, and Glenn and I will both combine on the Albertsons side of it. But we continue to monitor the dividend and think that monitoring our taxable income is the right approach, making sure that we have ample coverage and the ability to grow it over the long-term and start to generate some pretty significant free cash flow, which you're going to start to see at the end of '20 and into '21, which allows us to go and redeploy that capital accretively into the pipeline and into the redevelopment opportunities. We think that's the right approach. We think that's the way to really not only manage through the pandemic, but put us on a glide path for the future to be able to grow that dividend along with the AFFO growth from the portfolio. And then on the Albertsons side, we did mention we have over $550 million of the marketable security. It is in a lockout period, but it's starting to pay a dividend. So we continue to think that that's a wonderful investment for us both short-term and long term.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

And again, the Albertsons investment gives us lots of optionality about when we would want to monetize it and how best to use those proceeds. Again, we think about it primarily to try and reduce debt, although it is now an earning asset, which is helpful, but it gives us a lot of -- again, it gives us a lot of optionality.

Ross Cooper -- President and Chief Information Officer

Just one last piece, Haendel. This dispositions really are not a major player to how we think about the dividend. And in a lot of cases in the past, many of the dispositions that we did were really done as 1031 exchanges to kind of shelter the taxable income that went with them. So that really does not play a whole lot into how we think about the dividend. It's really about cash flow and generating as much free cash flow as we can.

Haendel St. Juste -- Mizuho -- Analyst

Sure. No, I appreciate that. I was just curious about how the perhaps less potential sourcing liquidity overall in the market could play a role into how you view your sources and uses into the coming year. And then maybe, can you just clarify -- I know there's a certain timing mechanism tied to how much of the Albertsons capital stock you could sell over time. How much, theoretically? What proportion perhaps are you able to sell next year?

Ross Cooper -- President and Chief Information Officer

This is Ray. The transaction with Albertsons, there was a 6-month lockout for the first 25% to be available, and that lockout would end at the end of December, early January. And then every six months thereafter, 25% more of the investment is released from the lockup. So I guess, for '21, half of it would be available to us out of the lockup. But as Glenn said, when we decide to monetize that will be a decision between us, management and the Board.

Operator

The next question comes from Caitlin Burrows with Goldman Sachs. Pardon me. We do have Mike Mueller with JPMorgan as the next questioner. Please go ahead.

Mike Mueller -- JPMorgan -- Analyst

I guess going back to the preferred and mezz investments. Is that something you're contemplating for on balance sheet? Or would that be a candidate to go into that investment vehicle that you set up in the spring?

Ross Cooper -- President and Chief Information Officer

Yes. Currently, we're doing it on balance sheet. As I mentioned, there's only a couple of relatively small deals in nature. Depending on the size of the opportunity set as we round the corner into '21, we could consider alternative structures. We've had the ongoing dialogue with several potential investors that would love to invest alongside us. We have not made any commitments to do that. So right now, we're doing it sort of on a one-off internal basis. And then depending on how much activity we see, we can always look to outside capital sources.

Mike Mueller -- JPMorgan -- Analyst

Got it. And is there an update on that investment vehicle for the spring?

Ross Cooper -- President and Chief Information Officer

I mean that's essentially the update there. We've had lots of conversations with capital providers that want to take advantage of our plus business, the preferred equity and mezzanine financing being the current sort of applicable program for that plus business. So again, we haven't made any formal commitment to any outside capital sources, but we have plenty that are sort of on the sidelines waiting to see if we're ready to bring them in or not.

Operator

The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi, good morning. Just a question back to Albertsons. Could you talk about just your latest thoughts for the holding? So I guess do you expect to be a long-term holder given the kind of optionality you said in terms of what could be sold in 2021? And do you think it would be to sell the shares only if you had an expansionary use, such as acquisitions or development? Or would you sell sooner and use the proceeds for something like debt pay down to the extent that you could?

Conor C. Flynn -- Chief Executive Officer

Yes. Again, Caitlin, we have a lot of optionality with it. As Ray mentioned, the first 25% doesn't become unlocked until really the end of this year. So we don't expect to do anything for the rest of this year. And then we'll evaluate it as we go through 2021. Again, if there's a good source for us to do something accretive, we would use that capital to do that, including debt paydown.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And then just the portion back to kind of the rent collection topic. The portion of the rents in the bucket of the -- to be decided and collected under negotiations, seems like it's roughly like 6% to 8% of each of 2Q, 3Q and October rents. So I was wondering what sorts of tenants are included in this category? And what's the outlook for getting these resolved?

Conor C. Flynn -- Chief Executive Officer

Yes. So in terms of the -- go ahead, Dave. No, go ahead.

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

All right. So yes. In terms of the open accounts, it is within the categories that you'd probably expect: restaurants, theater, some fitness, entertainment, etc. So we continue to work through those individuals and helping them structure a program lease modification program that works for them and works for us as well. But there's also a sizable amount that's related to outstanding billings, and real estate taxes. And a good majority of that is typically tied to your larger national tenants that have a period of time in which they do a review, ask questions, and then eventually, it's reconciled and paid. And that could lag up to 60 days or so on average. So you would see that there are some of those account -- open account items that would fall into that category.

Caitlin Burrows -- Goldman Sachs -- Analyst

I guess as a quick follow-up to that. Could you just say then, does that suggest that normal rent collection -- I feel like we haven't ever talked about it before 2020, but that normal rent collection isn't quite 100% right away and that some sort of lag is normal?

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Yes, yes. Great question. Glad you actually asked it. So our historic average on collections is actually never really 100%. It's around 95%. So when you think about where we are today, in that 90% to 91% range, we're not that far off from what we've historically collected and what we anticipate collecting, when you use 95% as really your ceiling. So there's always a component of there that's outstanding, that's in dispute or may not be collected as a result. So when you put that back into context, you started to get a sense. We're getting fairly close. We're not -- to where our historic norms were.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay, thank you.

Operator

The next question comes from Floris Van Dijkum with Compass Point. Please go ahead.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, morning guys. Quick -- two quick questions, I guess. #1 is what is your billable rents in the third quarter relative to your first quarter? And what is your recurring -- so what I was trying to figure out is, what is your recurring revenue in the third quarter relative to your recurring revenue in the first quarter?

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Yes, Floris. It's David Bujnicki. The billable amounts haven't changed dramatically from the first quarter to where it is now. If anything, it may be because of rent fallout from some of the tenant bankruptcies. But outside that, if you try to get back to that denominated change, it really hasn't changed much at all, because even our cash based tenants, as we've increased them, we still accrue that rent and show us a billable piece, and then we take it as part of the reserve. That have not during the quarter.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Right. So to Dave's point, the cash basis tenants during the third quarter, embedded in that $25.8 million reserve, there's $17 million of reserve that relates specifically to the cash basis tenants. So if you think about that, if you didn't have that accrual, you would have $8 million, $8.5 million of reserve, right? And we're just showing it gross up so that the denominator really hasn't changed all that much. Again, your denominator is low the tenants that would fit the tenant fallout that you have from the bankruptcies.

Floris Van Dijkum -- Compass Point -- Analyst

Okay. Let me ask you one other question. And obviously, Ross, thanks for giving your views on cap rate development. I think that was -- obviously, as we're looking at the stocks, they appear to be trading at a big discount. I was curious to get your views on M&A in the sector. When -- what do you think will trigger it? And also, maybe, Glenn, if you can give your views on, at some point, if this discount persist, when do you start to think about buying back stock? What would be the trigger for you to do that?

Ross Cooper -- President and Chief Information Officer

Yes. I mean I think as it relates to M&A, it's always a bit tricky. We've done it five different times in the past in the company's history. We continue to stay very focused for -- Kimco purposes on location, geographic quality, etc. So the discipline will remain there. We'll continue to monitor the landscape, but it's a very challenging environment for that. Particularly when you look at, as I mentioned, the landscape in terms of financing, it makes it very challenging for any sort of privatization in the market as well. So while it looks like the opportunity could be right just based upon the discount to NAV, it still becomes a very challenging endeavor that we'll see how things play out as we round into '21 with some of the companies out there.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

As far as the buyback, again, we are very, very focused on liquidity. We're very focused on bringing our net debt-to-EBITDA levels down in this environment. Again, and we're still -- us and everyone else, no one is fully out of the woods yet with this virus. I mean, today alone, you had a new -- 100,000 new cases reported. So no one knows the full impact of what's going to happen. And I think it's prudent to just be very cautious at this point. So again, having liquidity is crucial. And until we have real clarity that we are moving back in the full right direction, I think it's very important to just hold on to your liquidity.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks guys.

Operator

Thank you. The next question comes from Chris Lucas with Capital One. Please go ahead.

Chris Lucas -- Capital One -- Analyst

Hey, good morning guys. Sorry to keep the call going. But I just had two quick ones. Dave, just on the sort of on your inventory of space that's come back to you in the last couple of quarters. How does that match up to sort of where the demand is in the market?

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Good question. So on the anchor space side, the Stein Marts had filed, and we're going to see that fall out this quarter. That's very well in line with a lot of the off-price and the grocer activity that we're starting to see in the market. In the mid shop size, that 8,000 to 12,000 range, you're seeing the likes of five Below, Alta and others that are actively expanding, including the Dollar stores.

So that's a bright spot and encouraging. On the small shop side, we're -- we'll start to see -- again, the recovery on the small shops will be more prolonged, a little bit slower, but when you see service-oriented tenants, medical, healthcare, that's a growing category that fits well in the small shops, as well as some of the very well capitalized quick service fast food restaurant opportunities as well. I mean, they're seeing opportunities here to expand their footprint. So that's where we're seeing the alignment that works out well. And -- but it's -- I'd say the inventory is fairly consistent to what we've seen historically. It's just right now, we're obviously seeing more of it in a shorter period and I think though, fortunately, we'll start to see, because of the higher quality, we'll see that absorption accelerate pretty quickly as we move into '21 and '22.

Chris Lucas -- Capital One -- Analyst

So when you think about your Pier one models, CENA boxes that you're getting back, do you feel like you can get those back and leased up on a single-tenant basis? Or do you feel like there's going to be some components, some meaningful component that will be -- you need to split up in order to...

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

It varies case by case, the orientation of the box, depth of the box, how much store frontage there is. Does it make sense for a retailer to stretch a little bit to take the whole box to make the economics more favorable? Or do we have an opportunity where we can split and put into smaller shop tenants that work well? So it's hard to suggest one way or the other. It's always a unit-by-unit assessment to what works best. But as I mentioned earlier, there are tenants that are of high-quality and good credit that have interest in those sizes, which is encouraging.

Chris Lucas -- Capital One -- Analyst

And then, Glenn, just a quick one for me. On the bankrupt tenants, how much did they contribute in terms of revenue to reported results for third quarter?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

So the...

Ross Cooper -- President and Chief Information Officer

Bank of tenants account for approximately 2.3% of our ABR for the third quarter for the third quarter.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

And about 65% of that was collected from those tenants.

Operator

Our next question is from Samir Khanal of Evercore. Please go ahead.

Samir Khanal -- Evercore -- Analyst

Good morning. Just one for me here. From a modeling standpoint on G&A, what's the run rate we should be thinking about? I know you had a couple of moving parts there with the streamlining of the businesses in a different region.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Yes. So we took, as I mentioned, Samir, about an $8.6 million charge during the quarter related to the voluntary retirement program that we offered, plus the merging of the two regions. It will probably have an impact going forward of about a $4 million, $5 million a year reduction in G&A. You'll start seeing it toward the middle of the second quarter next year as everything winds down and it gets completed.

Conor C. Flynn -- Chief Executive Officer

Samir, there's two other real modeling things, as you keep in mind. One of them relates to cap interest burn off as our development and redevelopment projects have kind of scaled down, and the other is our equity and income from other real estate investments. Glenn, maybe you can give a little color on that.

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Sure. So on both of those points, our redevelopment and development pipeline is probably the lowest it's been in about five years. So you have this burn-off of the cap interest. So we would expect next year, cap interest will probably be about half of what it was. So that's probably around a $7 million less number next year. And then as I mentioned, we sold a pretty large portion of the preferred equity investments that we still hold. And so if you look at the balance sheet, you'll see that we sold about 40% of those. And the recurring income on those would probably be about $4 million to $5 million less next year. So those two items account for about probably $12 million or so of less FFO going forward.

Samir Khanal -- Evercore -- Analyst

Okay. Thanks, guys. That's it for me.

Operator

Our next question will come from Vince Tibone of Green Street.

Vince Tibone -- Green Street -- Analyst

Hi, good morning. I would like to come back to the commentary you provided on cap rates. Just cap rates may not have changed much since COVID, but NOI expectations are certainly lower today versus where they were in January. So I wanted to hear some color on how buyers are typically underwriting NOI today compared to 2019 levels. And do you have a view how much asset values have fallen all-in this year?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Yes. No. It's definitely a very specific undertaking that each organization takes. We have an extremely robust risk and underwriting group. And certainly, in this environment, you want to make sure that you're protecting your downside. So I think it's fairly common in this environment that buyers and anybody that's evaluating cash flow is being very conservative. Looking at a space by space analysis, determine the credit, the actual tendency that you have in place, what type of services they perform or provide. And lots of buyers are structuring around that, whether it be looking for certain escrows or holdbacks. And there's a variety of ways to skin the cat to ensure that you're protected. But there's no doubt that pegging the NOI that you're capping today is the biggest challenge in terms of underwriting and getting comfortable.

And frankly, that also, in addition to the lack of financing, is a big gap in the bid-ask between buyers and sellers, is coming to a determination and an understanding of what that appropriate NOI is today. It would be very difficult to specify what a decrease in value is pre and post pandemic. I would say what we're clearly seeing is that the bid-ask spread is much more narrow for the essential based retail properties, grocery, home improvement being two categories that are still transacting at pretty close to pre-pandemic levels. And you're seeing that widen out pretty significantly when you get outside of the essential based retail. So I think that it's -- where previously it was grocery versus power or core versus non-core. The analysis today is the percentage of income coming from essential based retail versus nonessential. And that's really the biggest differentiating factor in underwriting today.

Vince Tibone -- Green Street -- Analyst

Got it. That's helpful color. Is there any debt available for power centers today? Or is it kind of come back to just the essential mix and some of the stuff you touched on?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

There is. It's very dependent upon the tenancy and the location of that power center. We did see one transaction occur last week. It was a grocery-anchored power center, but the grocer was a relatively small component of the property. And from my understanding, the buyer closed with 65% LTV interest-only debt at low 3% interest rates. So when you have the right tenancy, you can find that, but it is more challenging today than it's been in the past.

Vince Tibone -- Green Street -- Analyst

Got it. One more super quick one for me. Just -- it looks like operating expenses were up 8% year-over-year in the quarter, whereas most of your peers cut opex in the mid single-digit range. So is that increase at all attributable to some of the internal restructurings? Or is there something else Kimco may be doing differently than their peers?

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

No, Vince. It really had to do a timing issue more than anything else. We deferred a bunch of cap projects in the early part of this year, especially with the pandemic, we're also holding off. So this is where -- during this quarter, you saw a lot more of that coming through. Yes. Meaning on the recovery as well.

Conor C. Flynn -- Chief Executive Officer

Yes. I mean if you look for the nine months for the year, it's basically flat.

Vince Tibone -- Green Street -- Analyst

Yes. No, I just wanted to see if it was more, but -- I mean, it sounds like it's a onetime issue anyway or a catch-up around some of the charges related to.

Conor C. Flynn -- Chief Executive Officer

There's also some expenses related to things we did around COVID that we needed to do as well. So that's all factoring in. But as Glenn mentioned, for the year-to-date, we're consistent with where we were last year.

Operator

Ladies and gentlemen, at this time, we will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Dave Bujnicki for any closing remarks.

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Great. We just want to thank everybody that participated on our call today. As a reminder, our supplemental and our investor presentation is posted to the IR website. Thank you very much, and enjoy the rest of your day.

Operator

[Operator Closing Remarks]

Duration: 89 minutes

Call participants:

David F. Bujnicki -- Senior Vice President, Investor Relations and Strategy

Conor C. Flynn -- Chief Executive Officer

Ross Cooper -- President and Chief Information Officer

Glenn G. Cohen -- Chief Financial Officer, Treasurer and Executive Vice President

Rich Hill -- Morgan Stanley -- Analyst

Juan Sanabria -- BMO Capital -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Michael Bilerman -- Citi -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Ki Bin Kim -- Truist -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Mike Mueller -- JPMorgan -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

Chris Lucas -- Capital One -- Analyst

Samir Khanal -- Evercore -- Analyst

Vince Tibone -- Green Street -- Analyst

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