Kimco Realty : Q4 2021 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

10-Feb-2022

Kimco Realty Corp. (KIM)

Q4 2021 Earnings Call

	Total Pages: 34
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2021 Earnings Call	10-Feb-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.
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

Richard Hill	Floris van Dijkum
Analyst, Morgan Stanley & Co. LLC	Analyst, Compass Point Research & Trading LLC
Michael Goldsmith	Haendel St. Juste
Analyst, UBS Securities LLC	Analyst, Mizuho Securities USA LLC
Samir Khanal	Ki Bin Kim
Analyst, Evercore ISI	Analyst, Truist Securities, Inc.
Craig Schmidt	Wes Golladay
Analyst, BofA Securities, Inc.	Analyst, Robert W. Baird & Co., Inc.
Juan C. Sanabria	Michael W. Mueller
Analyst, BMO Capital Markets	Analyst, JPMorgan Securities LLC
Caitlin Burrows	Anthony F. Powell
Analyst, Goldman Sachs & Co. LLC	Analyst, Barclays Capital, Inc.
Greg McGinniss	Linda Tsai
Analyst, Scotiabank	Analyst, Jefferies LLC
Michael Jason Bilerman	Michael Gorman
Analyst, Citigroup Global Markets, Inc.	Analyst, BTIG LLC
Katy McConnell	Tamara Fique
Analyst, Citigroup Global Markets, Inc.	Analyst, Wells Fargo Securities LLC
Alexander Goldfarb	Chris Lucas
Analyst, Piper Sandler & Co.	Analyst, Capital One Securities, Inc.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2021 Earnings Call	10-Feb-2022

MANAGEMENT DISCUSSION SECTION

Operator: Good morning, and welcome to Kimco's Fourth Quarter 2021 Earnings Conference. 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 F. Bujnicki, Senior Vice President, 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 the Investor Relations area of our 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 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.

Good morning and thanks for joining us. Today I will recap our operating results for the fourth quarter, provide an update on our strategic merger with Weingarten, and outline our key goals for the year ahead. Ross will give an update on the transaction market, and Glenn will cover our earnings results and guidance for 2022.

We continue to focus on execution as reflected by our strong fourth quarter performance. Leasing, leasing, leasing has been, is now and will continue to be our first, second and third priority. Our entire team has worked tirelessly to create a one-of-a-kind platform that utilizes our scale, portfolio quality, relationships, procurement abilities, data analytics, tenant support programs, last mile infrastructure, and pricing power. This platform has proven to be resilient when times are tough and shown to generate growth when the economic climate is favorable.

It is a key reason why we have been successful in re-leasingpandemic-induced vacancies while simultaneously attracting best-in-class operators that have embraced the future of last mile omni-channel retail.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2021 Earnings Call	10-Feb-2022

Now, for some details on the quarter. Pro-rata occupancy increased to 94.4%, up 30 basis points from last quarter and 50 basis points from a year ago. Anchor occupancy grew 20 basis points from last quarter to 97.1% and was up 40 basis points year-over-year. Small shop occupancy also increased and is now at 87.7%, up 40 basis points from last quarter and 160 basis points from a year ago.

Our portfolio continued to exhibit strong pricing power. During the fourth quarter, as illustrated by the solid increase in new leasing spreads, which were up 14.1% based on 152 deals and 588,000 square feet. Blended spreads on renewals and options also increased by a healthy 7%, comprised of 4.1% for renewals and 13.1% for options. These spreads were based on 286 deals covering 1.5 million square feet. Overall, our combined leasing spreads grew 8.1%, based on 438 deals covering nearly 2.1 million square feet.

A couple of things to note about our strong results: First, the suburbanization trend spurred by the pandemic helped to increase retailer sales and supported our efforts to push rents at our high barrier-to-entry locations; second, our portfolio continues to benefit from the pandemic-inducedwork-from-home trend as people are eating more takeout than home-cooked meals, which is driving more frequent visits to our restaurants and grocery stores. As a result of this activity, our traffic counts have exceeded 2019 levels. We expect this trend to continue in the post-pandemic. New normal as shopping centers continue to play a critical role in omni-channel retailing.

Our strategy to have a grocery and mixed use portfolio surrounding the first ring of our top 20 major metropolitan markets in the US continues. When we started this strategy over five years ago, it was nearly a 50/50 split of our annual base rent coming from our grocery-anchored shopping centers versus our non-grocer. Today, 80% of our annual base rent comes from shopping centers that have a grocery.

We have continued to successfully invest in our assets and over the past year signed eight new grocery leases, two of which converted non-grocery spaces. The other six leases backfield former grocers who vacated. And with the Weingarten merger now complete, we have further solidified our dominant grocery portfolio in the major Sunbelt markets. In addition, we have taken a deep dive into every asset we own and believe there continues to be further opportunity to push our ABR from the portfolio to 85% from grocery-anchored centers and increase our mixed use over the next five years with a combination of strategic redevelopment; leasing; acquisitions; and, to a smaller extent, dispositions.

The Weingarten merger was a perfect fit for our strategic vision, and I am happy to report that our fourth quarter results from the Weingarten portfolio exceeded all of our underwriting assumptions. We were ahead on leasing spreads, occupancy gains, retention rates and cash flow. In addition, we have exceeded the high end of the synergy forecast range of $35 million to $38 million, and we will continue to mine for additional savings throughout 2022.

With our first full quarter as a combined entity complete, we demonstrated that our proactive efforts to ensure a seamless integration really paid off, resulting in outperformance, including enhanced margins and cash flow. I want to thank all the new and existing Kimco employees for their ongoing commitment and contributions without skipping a beat during the integration.

In closing, we have a good visibility into our leasing momentum and continue to see strong demand across our portfolio in all categories. We remain committed to strengthening our long-term earnings growth through the portfolio by curating the right merchandising mix that will drive traffic at all points of the day. Ultimately, we expect to be first in last mile retail by attracting tenants that can plug into the supply chain and deliver goods and services to the consumer in the most flexible and convenient way possible. We believe that this ongoing approach is the best way to generate long-term growth and value creation.

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q4 2021 Earnings Call	10-Feb-2022

Now, I'll turn it over to Ross.

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Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Thanks, Conor, and good morning, everyone. 2021 was a banner year on many fronts, and we are incredibly excited about the positioning of Kimco and the platform we have built that will support future growth. Today, I will discuss our fourth quarter activity and then make a few comments on current market conditions and our expectations for 2022. As outlined on previous earnings calls, our Q4 transaction activity came mostly from partnership buyouts and structured investments. Buyout activity included two grocery-anchored assets in California for a gross value of $134 million, increasing our ownership from 15% to 100%. The previously announced buyout of Jamestown and the subsequent formation of a new 50/50 partnership with Blackstone's BREIT on our portfolio of six high quality Publix-anchored centers in South Florida and Atlanta. Based upon a gross valuation of $425.75 million, this deal increased our ownership level from 30% to 50% and the buyout of our partners 10% interest in the Centro Arlington project, a 366-unit Class A mixed use residential asset in Arlington, Virginia, for a pro-rata price of $26 million, increasing the Kimco ownership on this signature series asset to 100%.

A major benefit of our joint venture program is the ability to acquire assets throughout the cycle, while typically having both the first and last look when the partnership decides it is the appropriate time to exit. While we have had success acquiring portions of several JV assets that we didn't previously own, we remain prudent in our valuation.

To that point, in the fourth quarter, we sold our interest in several minority-owned joint venture assets where pricing was very aggressive. We anticipate selling a few more joint venture assets in the first quarter of 2022, as the market remains extremely hot for all open-air retail centers.

On the structured investment side, we closed on a $15 million mezzanine financing investment in a sprouts- anchored center in Jacksonville, Florida, adjacent to the dominant St. Johns Town Center. As with prior mezzanine financing, we will retain a right-of-first refusal in connection with any future sale, while achieving a double-digit current return in the interim. We expect to allocate additional capital towards our structured investment platform and will selectively add assets into the program that fit our criteria for quality locations, tenancy, demographics and sponsors. Since the inception of the preferred equity and mezzanine financing programs in late 2020, we have invested $126 million at double-digit returns with an option to acquire each of the assets in the future. All of these investments are currently performing as expected.

As we've entered 2022, a very different landscape exists than at this time last year. Rent rolls are more predictable and reliable, open-air retail has undoubtedly proven its relevancy for retailers and shoppers alike and capital continues to flow into our sector. I would classify the investment landscape today as ultra-competitive, with very crowded bidding by qualified buyers with an abundance of capital that they're ready to put to work.

The relatively modest level of increase in interest rates so far this year has not created any pause in the transaction market with equity investors or lenders at this stage. While this is a positive sign for the industry at large, it creates a challenge for us when seeking external growth opportunities. To illustrate this point, we've seen deals trading at sub-5% cap rates regularly, including one-off assets and portfolios on the West Coast, Metro DC, Florida, Boston, New York, Charlotte and elsewhere.

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