Kimco Realty : Q2 2023 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

27-Jul-2023

Kimco Realty Corp. (KIM)

Q2 2023 Earnings Call

	Total Pages: 18
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2023 Earnings Call	27-Jul-2023

CORPORATE PARTICIPANTS

David F. Bujnicki	Glenn Gary Cohen
Senior Vice President-Investor Relations & Strategy, Kimco Realty Corp.	Chief Financial Officer, Treasurer & Executive Vice President, Kimco
Conor C. Flynn	Realty Corp.
David Jamieson
Chief Executive Officer & Director, Kimco Realty Corp.
Ross Cooper	Chief Operating Officer & Executive Vice President, Kimco Realty Corp.
Kathleen Thayer
President & Chief Investment Officer, Kimco Realty Corp.
	Senior Vice President, Corporate Accounting & Assistant Treasurer,
	Kimco Realty Corp.

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OTHER PARTICIPANTS

Samir Khanal	Anthony F. Powell
Analyst, Evercore Group LLC	Analyst, Barclays Capital, Inc.
Jeffrey Spector	Dori Kesten
Analyst, BofA Securities, Inc.	Analyst, Wells Fargo Securities LLC
Michael Goldsmith	Ronald Kamdem
Analyst, UBS Securities LLC	Analyst, Morgan Stanley & Co. LLC
Craig Mailman	Paulina Alejandra Rojas Schmidt
Analyst, Citigroup Global Markets, Inc.	Analyst, Green Street Advisors LLC
Caitlin Burrows	Wesley Golladay
Analyst, Goldman Sachs & Co. LLC	Analyst, Robert W. Baird & Co., Inc.
Alexander Goldfarb	Ki Bin Kim
Analyst, Piper Sandler & Co.	Analyst, Truist Securities, Inc.
Haendel St. Juste	Linda Tsai
Analyst, Mizuho Securities USA LLC	Analyst, Jefferies LLC
Floris van Dijkum	Michael W. Mueller
Analyst, Compass Point Research & Trading LLC	Analyst, JPMorgan Securities LLC
Greg McGinniss
Analyst, Scotiabank

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2023 Earnings Call	27-Jul-2023

MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to the Kimco Realty Second Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

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

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David F. Bujnicki

Senior Vice President-Investor Relations & Strategy, Kimco Realty Corp.

Good morning and thank you for joining Kimco's quarterly 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; Dave Jamieson, Kimco's Chief Operating Officer, as well as other members of our executive team that are also available to answer questions during the call.

As a reminder, statements made during the course of this call may be deemed forward-looking, and it is important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to the company's SEC filings that address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website. Also, in the event our call is to incur technical difficulties, we'll try to resolve as quickly as possible; and if the need arises, we'll post additional information to our IR website.

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

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Conor C. Flynn

Chief Executive Officer & Director, Kimco Realty Corp.

Good morning and thanks for joining us today. I will begin with an overview of the leasing environment, highlight a few of our notable accomplishments during the quarter, and provide an update on our longer-term strategy. Ross will then cover the transaction market, and Glenn will close with our financial metrics and updated guidance.

Easing inflation and a robust labor market have bolstered consumer sentiment. Demand for space remains strong as retailers continue to pursue their expansion plans, resulting in a favorable leasing environment for the Kimco portfolio. We closed the second quarter with 153 new leases, totaling over 650,000 square feet. With strong demand from our high quality, first ring suburban locations and limited new supply, rents are up across all of our regions. Our strong leasing spread continued to validate our portfolio quality and embedded pricing power. Our new leasing spread was 25.3% and included new leases on four of the Bed Bath & Beyond spaces, two of which we recaptured during the quarter. Overall, we closed 485 deals during the quarter, totaling 2.7 million square feet with a combined spread of 9.9%.

Our second quarter renewal and option spread was 7.6%, with renewals ending at 6.5% and options at 9.3%. As a result of healthy consumer spending and desirable locations, the majority of our tenant base including small shops and anchors, are electing to renew, retain and reinvest in their stores. We ended the quarter with 332

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2023 Earnings Call	27-Jul-2023

renewals and options totaling 2.1 million square feet, exceeding the previous five-year average for second quarter renewal and option volume and kept our retention rate near all-time highs. Small businesses grew throughout our portfolio with sequential occupancy gains of 30 basis points to 91%. Only 10 basis points shy of our all-time high; and we executed 26 anchor leases this quarter, the most substantial anchor activity we have generated in over five years.

Overall occupancy for the second quarter finished flat at 95.8%. This includes the recapturing of eight Bed Bath & Beyond boxes in the second quarter. These vacates plus 11 from Tuesday morning resulted in an anchor occupancy reduction of only 10 basis points sequentially to 97.7%, while still up 10 basis points year-over-year. This leasing activity bodes well for the absorption of our remaining Bed Bath & Beyond boxes and has also widened our spread between the signed, but not open retailer pipeline to 300 basis points, another good indicator of future growth embedded in the portfolio.

While we are not immune to retailer bankruptcies, the overall quality and diversity of our tenant mix, high demand locations, and best-in-class leasing team, enable us to withstand, and in some cases, take advantage of the short-term vicissitudes of tenant failures. In terms of Bed Bath & Beyond, we've released seven locations through the end of the second quarter including the four new leases executed during the second quarter with a pro rata mark-to-market spread of 31%. In addition, three of our leases were purchased by the retailers as part of the Bed Bath & Beyond option. Currently, we have activity on the 19 remaining Bed Bath spaces with the mark-to-market to market opportunity of over 20%.

While we anticipate a dip in occupancy during the third quarter due to the vacating of the remaining 19 Bed Bath leases at the end of July, we have seven locations at lease and activity on the 12 remaining. Overall, we are encouraged by the brisk lease up of these boxes, which further demonstrates the quality of the portfolio and the strength of the retail market and ultimately we believe will benefit from backfilling these boxes with stronger credit tenants.

With respect to our long-term strategic goals, we continue to make good progress. First, we added a new Sprouts grocery store to an asset in Virginia, increasing our percentage of grocery-anchored assets in the portfolio to 82%. In addition, our mixed-use portfolio continues to shine. We have now reached 2,471 apartments in operations across the Kimco portfolio, with over 1,000 apartments under construction and 5,300 entitled, offering a significant pipeline of future densification opportunities. The residential densification both complements and enhances our retail site, resulting in higher asking rents and leasing activity. A perfect example of this is our Pentagon project in Virginia. A newly completed 253-unit apartment complex affectionately named The Milton, which is already 49% leased, and ahead on rental rate and absorption assumptions. The addition of The Milton will have positive long-term impact on the economics for the rest of the site.

In closing, we are pleased with the performance of our operating platform and proud of our team's strong execution that allowed us to quickly and accretively backfill our vacancies at meaningful rental spreads. A true testament to the quality of our portfolio and leasing team. We have also made significant progress in our ongoing efforts to maintain a strong balance sheet and related metrics. Glenn will provide the details shortly.

That said, we continue to challenge ourselves to do better. We are tracking our deal costs and our build out time from lease execution to rent commencement to ultimately enhance efficiency. We continue to focus on growing net effective rent and have reduced the timeline for building out space year-over-year for the past two years. In addition, we are proud to be recognized by Forbes as a net zero leader; the only shopping center REIT to make the top 100 list, as we strive to be a leader in sustainability. All these accomplishments are reflective of an enormous team effort at Kimco. While we are positioned to withstand headwinds that will inevitably emerge, we

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2023 Earnings Call	27-Jul-2023

are also ready to take advantage of opportunities as they present themselves in our ongoing efforts to maximize results for all of our stakeholders. Ross?

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Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Thank you, Conor, and good morning. I hope everyone is enjoying their summer so far. Industry volume of open- air retail transactions in the first half of the year was down significantly compared to 2022. That said, we're starting to see the market thaw with activity warming up in the sector. While we did not acquire any new properties or utilize our structured investment program in the second quarter, we believe our patience and strong liquidity position will be rewarded as opportunities arise in the back half of the year. Since the ICSC convention in late- May, we have seen a noticeable increase in quality products hitting the market with sellers that are seemingly prepared to meet current pricing expectations. At the same time, there continues to be significant demand from both institutional and private investors for high quality open-air retail.

While borrowing costs and equity yield expectations remain elevated, the significant levels of capital seeking core retail remains strong and ready to deploy. With this dynamic, the market feels healthier and more vibrant now than it has at any point in the past nine months. Considering this backdrop, coupled with over $500 million of cash on our balance sheet at the end of the second quarter, we have been selectively targeting acquisition opportunities and accretive structured investments. There will be more detail to come on the existing pipeline as we move some of these deals across the finish line and we expect to close on a few select investments by year- end. As it relates to dispositions, we continue our selective approach, choosing assets for specific reasons.

Most notably, we sold our Christiana, Delaware land parcel for $32 million directly to an auto dealership operator. After evaluating several potential development plans for both retail and industrial, it became clear that our best risk adjusted return was a direct sale to the operator; allowing for subsequent redeployment of proceeds into income producing investments. We will continue to assess various prospects on both the new investment side and select pruning opportunities as we strive to generate incremental FFO growth, while further strengthening our balance sheet over time.

I will now pass it off to Glenn, for an update on the financials and outlook.

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Glenn Gary Cohen

Chief Financial Officer, Treasurer & Executive Vice President, Kimco Realty Corp.

Thanks, Ross, and good morning. Our high quality operating portfolio continues to deliver favorable results, highlighted by another quarter of positive same-site NOI growth and strong leasing spreads. Furthermore, with additional proceeds received from our Albertsons investment, we continue to enhance our liquidity position and leverage metrics.

Now, for some details on our second quarter results. FFO was $243.9 million or $0.39 per diluted share as compared to last year's second quarter results of $246.4 million or $0.40 per diluted share. Our second quarter results were driven by increased pro-rata NOI growth of $7.4 million, largely due to higher consolidated minimum rents of $12.5 million and higher percentage rent of $2.5 million. These increases were offset by higher bad debt expense of $3.8 million as the current period had a more normalized credit loss level compared to last year, which benefited from $800,000 of credit loss income due to reversals of reserves.

In addition, the increase in rental property expenses, which includes greater insurance costs, eclipsed the increase in recovery income by $3.5 million. Other factors related to the change in second quarter results were

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