Kimco Realty : Q2 2022 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

28-Jul-2022

Kimco Realty Corp. (KIM)

Q2 2022 Earnings Call

	Total Pages: 21
1-877-FACTSET www.callstreet.com	Copyright © 2001-2022 FactSet CallStreet, LLC

Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

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.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Craig Schmidt	Floris van Dijkum
Analyst, Bank of America Merrill Lynch	Analyst, Compass Point Research & Trading LLC
Adam Kramer	Michael W. Mueller
Analyst, Morgan Stanley	Analyst, JPMorgan Securities LLC
Greg McGinniss	Anthony F. Powell
Analyst, Scotiabank	Analyst, Barclays Capital, Inc.
Craig Mailman	Derek Johnston
Analyst, Citigroup Global Markets, Inc.	Analyst, Deutsche Bank Securities, Inc.
Samir Khanal	Ki Bin Kim
Analyst, Evercore ISI	Analyst, Truist Securities, Inc.
Juan C. Sanabria	Tayo Okusanya
Analyst, BMO Capital Markets Corp.	Analyst, Credit Suisse Securities (USA) LLC
Alexander Goldfarb	Linda Tsai
Analyst, Piper Sandler & Co.	Analyst, Jefferies LLC
Michael Goldsmith	Michael Jason Bilerman
Analyst, UBS Securities LLC	Analyst, Citigroup Global Markets, Inc.
Haendel St. Juste
Analyst, Mizuho Securities USA LLC

	2
1-877-FACTSET www.callstreet.com	Copyright © 2001-2022 FactSet CallStreet, LLC

Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

MANAGEMENT DISCUSSION SECTION

Operator: Greetings and welcome to the Kimco Realty Corporation's Second 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 your presentation at this time.

......................................................................................................................................................................................................................................................

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'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 the Investor Relations area of our website. Also, in the event our call were 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 Investor Relations website.

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

......................................................................................................................................................................................................................................................

Conor C. Flynn

Chief Executive Officer & Director, Kimco Realty Corp.

Good morning and thanks for joining us. I will lead off today's call with an update on our strategic initiatives and a review of our Q2 leasing highlights. Ross will cover the transaction market and our recent activity, and Glenn will follow with our financial metrics and our updated guidance.

We had another solid quarter, thanks to the efforts of our outstanding team, the high-quality nature of our portfolio, and our disciplined strategy. The initiatives we put in place more than five years ago to upgrade the quality of our portfolio, streamline our organization, and enhance our platform continue to drive exceptional results. Our investments in leasing and property management, human capital, ESG, community outreach, technology, data analytics, and entitlements have generated solid, positive returns and created value for all of our stakeholders.

We remain focused on executing our plan and putting up numbers that help to further differentiate Kimco and our approach. It is with cautious optimism that we highlight our considerable accomplishments this past quarter while remaining cognizant of the macro issues impacting our country, our economy, our retailers, and our consumers.

	3
1-877-FACTSET www.callstreet.com	Copyright © 2001-2022 FactSet CallStreet, LLC

Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

While our strong second quarter numbers are reflective, our leasing team continues to report that demand for space across our portfolio remains robust and should continue to grow.

For the right space, in the right location, pricing power remains strong, even in this period of economic uncertainty. One of the key drivers is our focus on last mile locations which are seeing positive traffic patterns at 101.3% relative to the same period last year. The Kimco consumer lives in the first-ring suburb of the top major metro markets where employment and spending power remain strong. While we can't ignore the impact of inflation, the consumer remains resilient for now. And more importantly, our portfolio focused on essential goods and services puts us in a sound position to better withstand the ever-changing environment.

On the leasing front, pro rata occupancy finished up 40 basis points, reaching 95.1% due to positive net absorption. Year-over-year, pro rata occupancy is up 120 basis points. Anchored occupancy is up 30 basis points quarter-over-quarter to 97.6% and up 70 basis points year-over-year. Small shop occupancy is up 80 basis points quarter-over-quarter to 89.2% and up 370 basis points year-over-year. That is our largest year-over-year increase in small shop occupancy in over 10 years.

During the quarter, we signed 150 new leases totaling 711,000 square feet. Our new lease spread was 16.6%, with notable positive drivers coming from medical, off price, beauty and salon services. We completed the quarter with 348 renewals and options totaling 1.6 million square feet. The second quarter renewals and options spread was 5.6%, with options ending at 6.4% and renewals at 5%. Total second quarter deal volume was 498 deals totaling 2.3 million square feet, with the combined leasing spread of 7.1%.

We executed two new grocery leases this quarter, which helped us cross the milestone of 80% of annual base rent coming from grocery-anchored properties ahead of schedule. And we continue on the path to hit our goal of 85% by 2025. The benefits of our portfolio transformation to a dominant grocery-anchored portfolio in the top metro market are numerous. Most notably, perhaps with robust small shop leasing activity, driven by the halo effect of our strong grocery anchors, which helps drive cross-shopping and more leasing demand and pricing power.

And an important takeaway this quarter is that our portfolio retention rates continue to shine. Our portfolio GLA retention rate during the second quarter was 93%, with anchors and small shops both 10% above their respective five-year average retention rate. The high retention rate is why we only had 91 total vacates for 223,000 square feet this quarter, making it the lowest GLA vacated during a quarter over the past 10 years.

Further, we're maintaining pricing power, as 96% of all renewals and options were on a positive rent spread. We believe these high retention rates are directly related to our efforts to optimize our last mile locations for our retailers and further highlight the value proposition of our portfolio. We also believe that if we continue to make the last mile store more valuable; over the long-term, our retention rates will continue to improve. Occupancy will rise, and tenant churn and CapEx will decrease, all of which will result in a higher long-term growth rate for the portfolio.

In closing, our strategy remains straightforward: focus on leasing, work to expedite our tenant openings, entitle our assets for future density opportunities, maintain a strong balance sheet and liquidity position, and be patient, identifying investment opportunities in which Kimco is uniquely positioned to add value. We believe these initiatives will lead us to sector outperformance and reinforce the Kimco differentiator that drives total shareholder return. Ross?

......................................................................................................................................................................................................................................................
	4
1-877-FACTSET www.callstreet.com	Copyright © 2001-2022 FactSet CallStreet, LLC

Kimco Realty Corp. (KIM)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Good morning, and I hope everyone is having an enjoyable summer. As we always say in this business, the only constant is change. And the second quarter has showcased the unpredictability of the macro economy and how quickly things can pivot. To that point, the mantra we continue to follow emphasizes the importance of maintaining a nimble and opportunistic strategy and a balance sheet that supports both organic and external growth at any point in the cycle. The quality of our portfolio, balance sheet, and liquidity position puts us in a prime spot to be opportunistic.

On previous earnings calls, we identified a pipeline of activity in all three elements of our transaction strategy which are: the buying out of JV partners, providing mezzanine and preferred equity financing via our structured investments program, as well as the outright third-party acquisition of high-quality shopping centers that offer further opportunities for value creation. In the second quarter, we closed on several transactions in support of this strategy.

In terms of partnership buyouts, we acquired an additional 3.6% interest in our longest standing institutional joint venture, the KIR partnership, thereby increasing our ownership percentage of that fund to 52.1%. The net payment for this was approximately $55 million. The assets consist of a geographically diverse portfolio of high- quality, long-term hold properties for Kimco.

On the structured investment side, during the quarter, we closed three mezzanine loans for approximately $50 million, providing double-digit returns. The assets included a Safeway-anchored regional center in Fairfax, Virginia; a mixed use pedestrian-friendly tower center in a high-income super zip part of Dallas; and a unique, irreplaceable center along the 105 Freeway in Los Angeles in a dense infill location with a culturally immersive experience, anchored by a supermarket, pharmacy, a mercado, and others. All of these investments have a right of first offer or right of first refusal in the event of a sale, putting us in a prime position to potentially own these assets in the future.

Subsequent to quarter-end, we acquired two premier grocery-anchored centers from Cedar Realty as part of their portfolio transaction with DRA and KPR Centers. The properties, which we view as the two best assets in the Cedar portfolio are located in Massapequa, New York; and Philadelphia, PA. Both assets have tremendous upside potential that we look forward to unlocking.

Separately, we also made a $22 million participating loan on three grocery-anchored centers in Pennsylvania as part of our structured investment program. This is a prime example of our ability to utilize our various investment components to opportunistically deploy capital with a unique deal structure. Also post-quarter-end, we were able to negotiate a $21.2 million buyout of a fee title position on a former Weingarten site in Rockville, Maryland, where we previously had a leasehold position with only 37 years remaining. The transaction enables us to collapse the leasehold and create substantial net asset value on the property by converting our ownership to a fee position.

On the disposition front, we sold approximately $100 million at Kimco share of non-core assets, where the value have been maximized. This included several joint venture assets which we elected to sell to a third-party rather than meet the pricing. We will continue this strategy where appropriate with all of our joint venture partners and make a disciplined decision whether to sell the asset or negotiate a buyout of our partners' interests. While the market has quickly become a bit choppy on the transaction side with the bid ask between buyers and sellers starting to widen, and the lenders becoming more conservative as interest rates and inflation rises, we continue to see a healthy demand for core grocery-anchored product that provides everyday goods and services.

	5
1-877-FACTSET www.callstreet.com	Copyright © 2001-2022 FactSet CallStreet, LLC