Kimco Realty : Q4 2022 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

09-Feb-2023

Kimco Realty Corp. (KIM)

Q4 2022 Earnings Call

	Total Pages: 19
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2022 Earnings Call	09-Feb-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.
President & Chief Investment Officer, Kimco Realty Corp.

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OTHER PARTICIPANTS

Michael Goldsmith	Ronald Kamdem
Analyst, UBS Securities LLC	Analyst, Morgan Stanley & Co. LLC
Samir Khanal	Alexander Goldfarb
Analyst, Evercore ISI	Analyst, Piper Sandler & Co.
Juan C. Sanabria	Wes Golladay
Analyst, BMO Capital Markets Corp.	Analyst, Robert W. Baird & Co., Inc.
Greg McGinniss	Anthony F. Powell
Analyst, Scotiabank	Analyst, Barclays Capital, Inc.
Floris van Dijkum	Michael W. Mueller
Analyst, Compass Point Research & Trading LLC	Analyst, JPMorgan Securities LLC
Craig Mailman	Paulina Alejandra Rojas Schmidt
Analyst, Citigroup Global Markets, Inc.	Analyst, Green Street Advisors LLC
Haendel St. Juste	Tayo Okusanya
Analyst, Mizuho Securities USA LLC	Analyst, Credit Suisse Securities (USA) LLC
Craig Schmidt	Linda Tsai
Analyst, BofA Securities, Inc.	Analyst, Jefferies LLC
Ki Bin Kim
Analyst, Truist Securities, Inc.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2022 Earnings Call	09-Feb-2023

MANAGEMENT DISCUSSION SECTION

Operator: Greetings, and welcome to the Kimco Realty Corporation's Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. David Bujnicki, Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bujnicki, you may begin.

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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 was 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.

And with that, I'll turn the call over to Connor.

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Conor C. Flynn

Chief Executive Officer & Director, Kimco Realty Corp.

Thanks, Dave. Good morning, everyone, and thanks for joining us. Today, I will provide a quick recap of our major accomplishments for 2022 and share some of the progress we have made on our longer term strategic goals. Ross will follow with an update on the transaction market and Glenn will report on our earnings results for Q4 and our guidance for 2023.

At Kimco, we believe a winning strategy is one that can be successful in any economic environment. It needs to be opportunistic, have multiple growth drivers and be resilient during downturns. A winning strategy also needs to be easy to understand and be supported by a best-in-class team to implement and execute on it. The Kimco strategic plan meets all these criteria and that is why we are so proud of our 2022 results and excited about our longer term prospects. If the ultimate measure of evaluating a strategic plan is results, then it is abundantly clear that we are on the right track.

2022 was a banner year, and the fourth quarter was again outstanding from a leasing perspective, as our team achieved some recent and all-time highs across many of our key metrics. This includes strong overall occupancy

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2022 Earnings Call	09-Feb-2023

that finished up 40 basis points pro-rata to 95.7%. This represents a recovery of nearly 90% of the COVID inventory we experienced and only 70 basis points below our all-time high.

Year-over-year, overall occupancy was up 130 basis points, which is one of the highest year-over-year gains we've experienced, contributing to our strong results was a 20 basis points sequential and a 90 basis point year- over-year rise in anchor occupancy to 98%. Small shop occupancy increased 80 basis points sequentially to 90% and was up 230 basis points year-over-year.

In 2022, we leased over 11.5 million square feet, which is the highest level on record. Specifically, we ended the quarter with 152 new leases, totaling 795,000 square feet, exceeding the five-year average new lease GLA for the fourth quarter. Our new lease spread was very strong, 30.4%, and includes new grocery leases with Whole Foods and Albertsons.

We closed the quarter with 340 renewals and options, totaling 1.7 million square feet, exceeding the five-year average for renewals and options GLA for fourth quarter. The spread on renewals and options was 4.6% during the quarter, with options ending at 8.5% and renewals at 2.7%. Total fourth quarter 2022 leasing volume was 492 deals, totaling 2.5 million square feet at a combined spread of 8.7%.

We experienced only 99 vacates, totaling just 305,000 square feet in the fourth quarter, which is 37% lower than the prior five-year historical average for the fourth quarter. Our mixed-use entitlement initiatives reached new highs in 2022, as we continue to unlock the highest and best use of our real estate.

We set another Kimco record by entitling 2,805 apartment units in 2022, bringing our current total entitlements to 5,461 units. Combined with the 2,218 apartment units we have already built and 1,139 units that are under construction, this brings our overall total to 8,818 units, and we are well on our way to our upsized target of 12,000 by the end of 2025.

Our percent of ABR for mixed-use assets is now up to 13% and we continue to use a CapEx-light strategy to activate projects by either ground leasing or joint venturing with best-in-class apartment developers.

Turning to 2023 and beyond, we believe our platform advantage is just beginning to demonstrate its potential. Efficiencies of scale often take time in multiple cycles to play out, but thus far it is clear from our performance throughout the pandemic and during 2022 that both our strategy and efforts are being validated.

Our unmatched diversification, our access to capital, our internal and external growth profile, our large-scale M&A experience, our CapEx-lightmixed-use redevelopment strategy and our opportunistic investment record are just some of the differentiators that characterize Kimco. That said, we can't rest on our 2022 accomplishments. We know 2023 will require a full team effort to produce another year of sector-leading results.

We are also encouraged by the fundamental strength of our operating business. Limited new supply, high retention levels and robust retailer demand for quality space, such as ours, makes for a healthy leasing environment. While we anticipate leasing velocity and retention rates to continue at elevated levels, we can't ignore the macro environment and the potential for credit defaults to revert to the mean. That is why our 2023 priorities include additional focus on controlling expenses, upgrading the credit and merchandise mix of our tenant base, and attracting recurring customers.

One of the keys for Kimco in 2023 will be to expedite tenant openings and compress the leased economic occupancy spread of 260 basis points. That represents approximately $43 million of annual base rent that is not

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2022 Earnings Call	09-Feb-2023

yet contributing to cash flow. While our size and diversification have significantly reduced our exposure to weaker credit tenants, we still need to be vigilant and proactive. We need to closely monitor our tenant watch lists and anticipate changes and turn them into opportunities.

Bed Bath & Beyond is a case in point. Subsequent to year-end, we sold a shopping center with one Bed Bath, reducing our exposure to 25 Bed Bath, one Cost Plus sublease and four buybuy BABY locations.

At this point, we know that Bed Bath is planning to close six stores. Of those locations, we already have two leases executed, two ready for execution and two with active LOI negotiations, with a combined potential spread of over 12%.

We are also in active negotiations with retailers on the balance of the portfolio, representing 60 basis points of Kim's share ABR, of which 10 basis points relates to buybuy BABY. This level of activity proves we continue to see strong demand from a diverse set of retailers for the vast majority of these well-located boxes, which are primarily in desirable demographic areas where there is virtually no new supply.

Leasing, leasing, leasing will continue to be our mantra in 2023, and together with a solid balance sheet, strong free cash flow and ample liquidity, including further potential monetization of our Albertsons stake, we are poised to take advantage of any dislocation and ready to pounce as opportunities present themselves.

We have made meaningful progress towards our stated 2025 goals, both on the operating and earnings front, along with further strengthening our balance sheet. Specifically, we have improved our debt maturity profile and increased our portfolio of unencumbered assets, while minimizing exposure to floating rate debt.

At Kimco, we are never satisfied with the status quo and our entrepreneurial team is laser-focused on building upon our past achievements and advancing what we believe to be as our best-in-class platform and portfolio. You will see the continued evolution of our portfolio composition through a mix of our unique leasing strategies, including adding grocery anchors where feasible, entitlements, redevelopments and data analytics and tools that give our platform a unique advantage.

With our focus on owning and operating the last-mileopen-air,grocery-anchored shopping centers, along with a growing portfolio of mixed-use assets, Kimco has come a long way in a short period of time. And we all collectively believe that the best is yet to come in our efforts to maximize long-term shareholder value. Ross?

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Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Good morning. I hope everyone is having a great start to their year. I will quickly touch upon a few additional details on the fourth quarter and year end before getting into the current environment and our external growth expectations for 2023.

As previously mentioned, in the fourth quarter, we closed on the $375.8 million acquisition of eight open-air retail centers from a privately-held portfolio based in the high-barrier-to-entry Long Island, New York market.

With five of the centers grocery-anchored, this acquisition is well aligned with our long-term investment approach. Utilizing a combination of cash, the assumption of below-market fixed rate debt and tax-deferred downREIT units, we were able to structure an accretive transaction for this generational portfolio. We are very excited about the potential to create incremental long-term value on these properties with our leasing and our operating platform.

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