Kimco Realty : Q1 2023 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

27-Apr-2023

Kimco Realty Corp. (KIM)

Q1 2023 Earnings Call

	Total Pages: 19
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2023 Earnings Call	27-Apr-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

Michael Goldsmith	Caitlin Burrows
Analyst, UBS Securities LLC	Analyst, Goldman Sachs & Co. LLC
Craig Mailman	Ki Bin Kim
Analyst, Citigroup Global Markets, Inc.	Analyst, Truist Securities, Inc.
Floris van Dijkum	Greg McGinniss
Analyst, Compass Point Research & Trading LLC	Analyst, Scotiabank
Juan C. Sanabria	Ronald Kamdem
Analyst, BMO Capital Markets Corp.	Analyst, Morgan Stanley & Co. LLC
Alexander Goldfarb	Linda Tsai
Analyst, Piper Sandler & Co.	Analyst, Jefferies LLC
Samir Khanal	Craig Schmidt
Analyst, Evercore ISI	Analyst, BofA Securities, Inc.
Haendel St. Juste	Alec Feygin
Analyst, Mizuho Securities USA LLC	Analyst, Robert W. Baird & Co., Inc.
Anthony F. Powell	Michael W. Mueller
Analyst, Barclays Capital, Inc.	Analyst, JPMorgan Securities LLC

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2023 Earnings Call	27-Apr-2023

MANAGEMENT DISCUSSION SECTION

Operator: Greetings, and welcome to the Kimco Realty First Quarter 2023 Earnings Conference 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 call is being recorded.

It is now my pleasure to introduce your host, Mr. Dave Bujnicki, Senior Vice President of Investor Relations & 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; and 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's important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to the company's SEC filings that address such factors.

During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website. Also, in the event our call was 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.

And 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 thank you for joining us today. I will begin with an overview of the leasing environment and share how we are strategically well positioned for long-term growth. Ross will then cover the transaction market, and Glenn will close with our key performance metrics and updated guidance.

We are off to a great start to the year with solid first quarter results, including over 4.5 million square feet of leasing, as we benefited from a combination of high-qualitygrocery-anchored assets emphasizing off-price retail and everyday essentials in first-ring suburbs that makes us uniquely positioned to benefit from what we believe to be longer-term trends relating to consumers and retail strategies.

We accomplished this leasing in the face of high interest rates, bank failures, signs of a weakening economy, and troubled retailers. Our dedicated team and resilient portfolio not only withstood these pressures but outperformed. First, the consumer; while inflation remains stubborn, the Kimco shopper remained sturdy, as we continue to see healthy traffic reported across our portfolio. According to our large national retailers, the demand for essential

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2023 Earnings Call	27-Apr-2023

goods, services and groceries continues to be strong. In addition, the flexible hybrid work environment is creating more opportunity for shoppers to frequent our centers.

Finally, omnichannel shopping continues to outperform pure online shopping, as optionality is a winning formula by providing consumers the convenience of shopping online and picking up or returning at the local store. Requests to expand our nationally recognized curbside pickup program continue to grow from our entire stable of national, regional, and small shop tenants.

In addition to the resilient consumer, leasing demand and the ability to push rents continues at a robust pace due to the lack of new supply and high barriers to entry at our highly desirable locations. The demand for new space is well diversified, with the mix of new deals this quarter spread among off-price, grocery, sporting goods, fitness, health and wellness, medical, and fast casual dining.

As part of our focus on attaining the highest and best use of our properties, we also secured 2 new entrants to the Kimco portfolio this quarter, a Tesla dealership in Austin, Texas; and a Market by Macy's in San Diego. Strong leasing, supported by this robust well-rounded demand, is reflected in our new leasing spreads of 44%, a five- year high.

Occupancy bucks the seasonality trend of dipping after the holidays and gained 10 basis points, thanks to our team's stellar efforts and our small shop leasing initiatives. During the first quarter, we anticipated some space coming back from underperforming retailers, including Bed Bath & Beyond, who just filed for bankruptcy this past week.

This has been widely expected, and we've been well prepared for this outcome as we have actively marketed all of our Bed Bath spaces for some time. To highlight our successful efforts, we started the year with 30 Bed Bath leases. During the first quarter, we sold one location and released three boxes, including two we recaptured with a mark-to-market spread of 24%.

Regarding the remaining 26 Bed Bass leases, we are either in lease or LOI negotiations on 22 locations, with a mark-to-market spread similar to what we have executed to-date, which exemplifies the strong activity from a diverse pool of retailers looking to expand. The remaining four locations are either being marketed for lease or a potential redevelopment candidate.

The lack of supply and inability to meet new store targets is a constant refrain from our retailers during our portfolio reviews, and remains key catalysts for the lease-up of these locations. It is also why our retention rates for the portfolio continue to remain well above historical levels at 90% this quarter. With this pace of retention and the strong leasing demand, we believe that over the long-term, we should see an improved underlying growth rate for our business.

Further enhancing the value of our first-ring suburb locations is the increased demand for industrial and residential assets. This competition for land or conversions makes the cost of new retail development even more prohibitive, which will further reduce supply for potential new retail. And when you combine the rising rents in the residential sectors with the competitive redevelopment advantages at our existing locations in the first-ring suburbs, the opportunity to add more mixed-use density provides us the long-term opportunity to drive further growth and value creation. In the end, strategically, we are well positioned for what could be a choppy second half of the year and beyond.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2023 Earnings Call	27-Apr-2023

With our open air high-qualitygrocery-anchored portfolio producing record results, our leverage metrics at all-time lows, along with our significant cash position, we are positioned for growth, and we'll look to be opportunistic when others cannot in our quest to outperform on a sustained basis.

Ross?

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Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Thank you, Conor, and good morning. I'll begin with the market for transactions, which remains restrained given the volatility in the capital markets and elevated borrowing costs.

Transaction volume was down across the board in the first quarter. However, what has remained constant is the significant demand from both institutional and private investors for high-qualityopen-air retail. A healthy level of equity capital remains patiently waiting on the sidelines for opportunities to acquire our product type, as the property fundamentals continue to improve within this retail sector.

Notwithstanding the improving operating fundamentals, investors are seeking higher cap rates to offset higher cost of capital. At the same time, however, supply remains limited with sellers holding out for higher pricing unless they face refinancing or other pressure to sell. How long this stalemate lasts is the ultimate question. Despite these broader market conditions, we have found ways to selectively and accretively put capital to work.

On the last earnings call, we mentioned the two Southern California grocery assets we acquired from one of our JV partners. Subsequent to the call, we were successful in buying out a third grocery-anchored site in Southern California from the same partner. This property is a dual grocery-anchored site with a Smart & Final traditional grocer in addition to a Trader Joe's. We are excited to add these three strong performing grocery assets to our wholly-owned portfolio despite the market conditions I described.

We also added a new structured investment into our program in the first quarter and $11.2 million subordinated loan on a Sprouts-anchored shopping center outside of Orlando, Florida. As with all of our structured investments, we retain the right to acquire the asset in the future in the event the sponsor looks to sell. This property is another great addition to the structured portfolio, with a very attractive return at a very appealing basis on our investment.

As it relates to dispositions, we previously mentioned the two Savannah, Georgia Power centers we sold back in January. Prior to quarter-end, we sold a third power center in Gresham, Oregon. To my point earlier that it has taken longer to transact, we have been working on this since the fourth quarter of last year and successfully closed at the end of March. While we don't anticipate a significant number of dispositions in 2023, the sale of these three centers reflects our efforts to ultimately own a portfolio consisting of primarily grocery-anchored retail centers and mixed-use destinations in our top major metro markets.

All in all, we are in a great position to continue to be opportunistic should current owners start to feel more pressure to transact. Our strong liquidity allows us to move quickly and aggressively on the right acquisitions or joint venture buyouts, and to be financially helpful to owners that need an infusion of capital for debt paydowns or asset repositioning, utilizing our structured investment program.

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

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