Kimco Realty : Q3 2022 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

27-Oct-2022

Kimco Realty Corp. (KIM)

Q3 2022 Earnings Call

	Total Pages: 17
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q3 2022 Earnings Call	27-Oct-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.

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OTHER PARTICIPANTS

Michael Goldsmith	Floris van Dijkum
Analyst, UBS Securities LLC	Analyst, Compass Point Research & Trading LLC
Samir Khanal	Craig Schmidt
Analyst, Evercore Group LLC	Analyst, BofA Securities, Inc.
Greg McGinniss	Ki Bin Kim
Analyst, Scotiabank	Analyst, Truist Securities, Inc.
Juan C. Sanabria	Ronald Kamdem
Analyst, BMO Capital Markets Corp.	Analyst, Morgan Stanley & Co. LLC
Haendel St. Juste	Wes Golladay
Analyst, Mizuho Securities USA LLC	Analyst, Robert W. Baird & Co., Inc.
Alexander Goldfarb	Michael W. Mueller
Analyst, Piper Sandler & Co.	Analyst, JPMorgan Securities LLC
Craig Mailman
Analyst, Citigroup Global Markets, Inc.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q3 2022 Earnings Call	27-Oct-2022

MANAGEMENT DISCUSSION SECTION

Operator: Greetings and welcome to the Kimco Realty Corporation's Third 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'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.

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Conor C. Flynn

Chief Executive Officer & Director, Kimco Realty Corp.

Thanks, Dave. Today, I'll kick things off with a brief update on our strong operating fundamentals and our strategic plan as we navigate what appears to be an uncertain and challenging macroeconomic environment. Ross will follow with an update on the transaction market, and Glenn will close with our financial metrics and updated guidance.

First our results, another strong quarter continues to validate the quality of our portfolio and our talented team that each continue to shine. These two constants will continue to serve us regardless of the ever changing external environment. The current supply and demand landscape continues to benefit Kimco as retailers prioritize our portfolio of open-air, high quality grocery-anchored shopping centers and mixed-use assets, positioned in first string last mile suburbs of major metro markets.

Sequentially total occupancy finished up 20 basis points pro-rata to 95.3% and year-over-year occupancy was up 120 basis points due to positive net absorption. Anchored occupancy increased 20 basis points quarter-over- quarter to 97.8% and was up 90 basis points year-over-year. Small shop occupancy ended flat sequentially at 89.2% and was up a 190 basis points year-over-year. It is worth noting that small shop occupancy would have been up 10 basis points this quarter, but for some vacancies associated with our recent acquisition of two

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q3 2022 Earnings Call	27-Oct-2022

grocery-anchored centers in Fishtown, Philadelphia and Massapequa, Long Island, which had a 10 basis point impact on our overall small shop vacancy. We view these vacancies as future upside and our leasing activity on all 10 of the small shops at these properties.

During the quarter, we signed 146 new leases totaling 620,000 square feet. Our new lease rent spread was 16.5%, with Burlington replacing a vacating Bed Bath & Beyond in the Southwest a notable driver. This is indicative of the embedded value in many of our older leases, including that form of our Bed, Bath & Beyond boxes which have a mark-to-market upside ranging from 15% to 20%. In the event we are able to recapture these Bed Bath & Beyond spaces, we have a variety of backfill candidates such as grocers, dominant omnichannel players or off price retailers, many of which have already shown interest in those boxes.

With virtually no new supply in over a decade, our strong credit tenants are finding it difficult to meet their new store opening targets and have been aggressively pursuing opportunities. Nothing accentuates the supply and demand imbalance more than the height and retention levels we continue to experience. During the quarter, we closed 315 renewals and options totaling 1.5 million square feet.

Third quarter renewals and options spread was 6.2%, with options ending at 7.9% and renewals at 5.2%. We reported only 111 vacates totaling 430,000 square feet this quarter, which is almost 20% lower than the five-year historical average for third quarter vacates. Overall, third quarter deal volume was a record at 461 deals totaling 2.1 million square feet, with a combined spread of 7.5%.

Notwithstanding the favorable demand, we continue to monitor the quality of our tenant base and remain confident that the tenants who have endured the pandemic with Kimco are battle-tested and have a higher credit quality. We are mindful of the current inflationary environment and the potential shift in consumer behavior. With that in mind I want to highlight our strategic priorities that have already put us in a strong position in which we believe will enable us to continue to outperform.

At Kimco, we always focus on creating long-term value, building a business for multiple cycles, multiple black swan events is not easy. In the last five years, it seems we have experienced more frequent once in a lifetime events than in previous decades combined and a critical component of our success in navigating these occurrences all starts with our team and our culture. We are fortunate to have a seasoned, energetic and diverse team and a Board of Directors that understands it takes resolve and patience to allow a strategic plan to be executed.

We prioritize integrity, we are doing the right thing, is embedded in the culture, and working together through adversity can be highly rewarding. Having the right people is unequivocally essential for weathering economic cycles and we are laser-focused on building out the best team. Our team building efforts have not gone unnoticed. We are proud to be the only public company to receive a great place to work in real estate award as voted by our employees. We take sincere pride in continuing to elevate and nurture the Kimco culture and serve as a leader in the industry.

Another priority is liquidity, which always needs to be a top priority in real estate. When a company like Kimco has financial strength relative to others, it provides a unique advantage, enabling us to seek out opportunities in moments of distress and find those generational opportunities. In addition, we benefit from a long dated debt maturity profile that is predominantly fixed rate, a diverse lender base, a large line of credit, ample amounts of free cash flow, and an investment grade credit rating, which sets Kimco apart.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q3 2022 Earnings Call	27-Oct-2022

Our recent partial Albertsons monetization has already boosted our unique liquidity position. As we move forward, we'll have the opportunity to monetize additional ACI shares and reinvest in growth opportunities. We also plan to continue focusing on our core competency, which is owning open-air,grocery-anchored shopping centers located in high-barrier-to-entry markets with below market leases.

Importantly, our grocery-anchored necessity based portfolio offers proven defensive characteristics while simultaneously offering ample opportunity to execute our remerchandising plans. These include further improvement in traffic, sales, and cash flow at the asset level. This is how we anticipate being able to continue to outperform with the ever changing economic environment notwithstanding.

And finally, we are patient and able to wait for unique opportunities for which Kimco can use its platform to continue to create long term shareholder value. We are well positioned to look at the broad landscape of investment opportunities and make sure we invest at a spread to our weighted average cost of capital that will help Kimco outperform over the long term.

And with that, I'll turn it over to Ross.

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Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Thank you, Conor, and good morning. It's been a busy few months on a variety of fronts. But importantly, Kimco is as well positioned as we have ever been to potentially take advantage of the ever changing market conditions. With the recent bond refinancings and partial Albertsons monetization completed, our liquidity positions us to continue to be opportunistic. On the transactions front as previously mentioned, we began the quarter by completing the acquisition of two grocery-anchored assets from the Cedar portfolio. In addition to the participating loan on three grocery-anchored assets in Pennsylvania.

Select disposition activity continued with the sale of nine shopping centers and two land parcels in Q3 for $188 million with KIM share of $64 million. These sales included several joint venture assets highlighted by the exit of a legacy Weingarten Joint venture consisting of the five remaining assets from the partnership. Kimco's ownership of that venture was 15% and included assets with demographics inconsistent with our core portfolio.

Additionally during the quarter Kimco was repaid in full on the first mezzanine loan that we made since the formation of the structured investments program in 2020. The unlevered IRR on that 20-month investment was 12%. As the quarter-progressed, the rising interest rate environment and overall market uncertainty led to a slowdown in deal flow given a widening spread on the bid asked between buyers and sellers. A majority of assets that were put on the market for sale this summer either have not transacted or delayed until 2023 or have been pulled altogether. The exceptions were committed deals that already had financing plans finalized.

For Kimco given the strength of the portfolio we have minimal dispositions planned and have the luxury of being price sensitive due to our strong liquidity position. As we look at the remainder of the year, we expect to execute on a few dispositions that were committed in prior months and should get done by year end. Looking ahead to 2023 we remained confident about the fundamentals of our business and our core portfolio, but also excited about the prospect of taking advantage of dislocation that favors well-capitalized companies with strong conviction for open-air retail properties.

As was the case in the early stages of the pandemic in 2020 and 2021, we intend to be judicious and disciplined with our capital allocation while ready to capitalize on unique opportunities. This should enable us to generate

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