Kimco Realty Corporation (HC)

Good morning and welcome to the Kimco Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to David Bujnicki.

Please go ahead. Good morning and thank you for joining Kimco Second Quarter 2020 Earnings Call. We'll jump right into it while most of us in the Northeast still have power and Wi-Fi service. The Kimco management team participating on the call today includes Connor 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 also be found on the investor relations area of our website. And with that, I'm going to turn the call over to Connor. Good morning, and thanks for joining us today. Today, I'll give you an update on how we are confronting the challenges posed by COVID-19 and how we plan to move forward as parts of the country continue to struggle with the virus while other parts slowly come back. We'll also give an update on the transaction market. and Glenn will follow with a recap of the numbers for Q2 and our enhanced liquidity position. The COVID virus is a challenge to our entire industry and one that we're addressing head on. At Kimco, our great team, high quality assets and strong balance sheets are helping us weather the pandemic and prepare for the future. We have an effective strategy for dealing with COVID-19 and have made significant progress since our last call. First, I would like to applaud the entire Kimco team for their tireless efforts in ensuring that our centers remain open and operating. Our people are smart, passionate, dedicated, and determined. Simply put, they are the best at what they do, and together we continue to provide our shoppers, our tenants, our employees, our extended Kimco family, and our local communities with a safe experience. It is also worth noting that as a result of our national footprint, our best practices and lessons learned from the challenges faced early on in the Northeast are now being employed to help those areas in the Southeast and West in their time of need. Our portfolio continues to withstand the pandemic's impact. We have reached deferral modification agreements with the vast majority of our top 100 retailers who we deem non-essential and are forced to close in some capacity. We believe our retailer partnerships are differentiators for Kimco. And in these challenging times, tenant relations matter more than ever. While working with our tenants to help them get to the other side, they have worked with us to remove certain needs restrictions that will enhance redevelopment opportunities and create long-term value for our shareholders. Ironically, many of our tenant relationships have actually strengthened during the pandemic, which bodes well for our future success, including the potential for opportunistic investments similar to the successful investment we made in Albertson. The operating metrics reported today for our repositioned portfolio reflect its quality and resiliency, and in times of stress, Quality is critical. We continue to lease space even in these uncertain times. In Q2, we executed 52 new leases totaling 256,000 square feet at a positive 22.9% spread and renewed 180 leases covering 959,000 square feet at a positive 10.7% spread. Combined, our spreads were a strong plus 12%. New leasing and tenant retention efforts helped occupancy finish at 95.6 for the quarter. Anchor occupancy was even stronger at 98.2%, and small shop occupancy was 88%. Year over year, our anchor occupancy was flat, which, again, represents a strong result in the current environment and a further testament to our team and portfolio. We continue to extend assistance to our small shop tenants who need help in these challenging times. Our Tenant Assistance Program, or TAP, is a multi-pronged approach to provide valuable resources free of charge. This program provides our small shop retailers with a free legal advisor to help navigate the numerous state and federal programs available for small businesses, which by our count has potentially resulted in over $20 million of PPP funding for our small shop tenants. Our TAP program is also helping tenants activate outdoor areas to continue operations. The National Kimco Curbside Pickup Initiative has been well-received, and customers are utilizing the service more and more. Retailers have told us that our curbside program stands as a festive encounter and has had a positive impact on their operations. We have also helped our restaurant tenants activate sidewalk cafes and green spaces to help with capacity constraints. All of our efforts and initiatives to help our tenants are paying off. For the month of April, we collected cash-based rent totaling 68%, In May, 66%. June, 76%. And July is currently at 82%. We are currently trending above our internal forecast for rent collection. While this is encouraging, we remain mindful of the rollbacks occurring in certain hotspots, and the simple reality is that the impact of the virus inhibits our industry's ability to forecast with a sense of confidence. During the second quarter, we granted rent deferrals totaling 18.5% of base rent. We fielded rent deferral requests for July that amounted to only 8% of scheduled rent and have worked out deferral plans for four basis points of total rent. This is a significant improvement from the start of the pandemic, when in April we fielded deferral requests that amounted to 39% of ABR. At the end of July, our weighted average repayment period for deferrals is approximately nine months. Currently, 94% of our tenants are open with only 3% of ABR subject to mandated closures. Our development and redevelopment pipeline activity is currently focused on achieving multiple entitlement master plan approvals across the country. Our goal is to entitle an additional 5,000 multifamily units in the next five years that will provide us with a total of 10,000 units by 2025. While we are closely controlling our project expenses, our goal is to be ready to move forward with several projects when market conditions are right. As for our signature series projects, we just received the temporary certificate of occupancy for the new ShopRite grocery anchor at the Boulevard Project on Staten Island. We anticipate opening this fall, with the majority of other retailers opening in the spring of 2021. At Dania Point, we recently completed construction and now have 15 tenant fit-outs underway, including Urban Outfitters and Anthropology. The first multifamily building, the Avery at Dania Point, which is on a ground lease, has begun moving in the first residency. Our portfolio strategy is focused on having our grocery, home improvement, and mixed-use anchored assets clustered in strong economic MSAs that serve the last mile. These dense areas create significant barriers to entry and a favorable balance of supply and demand. Our sophisticated retailers are utilizing these last-mile stores as indispensable fulfillment and distribution centers. This is a differentiator for Walmart, Costco, Target, Home Depot, Lowe's, and all of our grocery anchors. who continue to serve their customers in multiple ways, in-store shopping, buy-online pickup in-store, curbside pickup, and home delivery. These services and conveniences are all part of what the consumer is now demanding, and those with stores close to dense populations are outperforming pure e-commerce players on delivery times and cost efficiency. We are witnessing a blurring of lines between the distribution, fulfillment, and last-mile stores. We have also seen an uptick in demand from our essential retailers, who are also looking for more last-mile locations. Clearly, we are experiencing retail Darwinism play out in an expedited manner, and we believe we are well-positioned to take advantage of the future of retail. Finally, in addition to our team and portfolio, we continue to prioritize liquidity. Glenn will give the details on how we bolstered our balance sheet by issuing our first green bond at an attractive rate paid back our term loan, and continued to push out our maturity profile. We have our entire untapped $2 billion line of credit at our disposal, limited maturities on the horizon, and received a further cash infusion from our Allison's investment. We believe our ongoing efforts to enhance our balance sheet and cash position will enable us to prosper and be opportunistic at a time of tremendous dislocation and well into the future. While the current unpredictability of the virus and government actions is making forecasting a challenge, we continue to monitor the environment daily. We meet regularly with our board members to keep them up to date, review our cash projections, and determine how and when to reinstate our dividend. To be clear, it is our intention to pay an additional cash dividend in 2020, which, at a minimum, will cover our taxable income. As I said at the outset, the companies that stand out in this environment are those with superior talent, superior asset quality, and a superior balance sheet. In these unsettled times, we believe we have the right combination to weather the storm and will be among the best positions to preserve and succeed over the long term. Ross?

Thank you, Connor, and good morning, everyone. I would first like to echo Connor's sentiments on the Kimco team and the incredible efforts put forth during these challenging times. It has been nothing short of inspirational. On the business side, our strategy has been fairly straightforward. Ensure the maximum amount of liquidity and balance sheet strength to enable us to be opportunistic at the appropriate time. We are confident that we have successfully accomplished the first part of the equation and now we've remained patient and ready for the latter. Thus far, the transaction market has been fairly limited with most owners and lenders biding as much time as possible before deciding on a path forward with their assets. Multi-tenant strip center transactions were down by 80 to 90% from April through July. This is coming off a vibrant and active January and February, which was up 30% and 16% year over year. The majority of the deals that did close from April to June were pre-COVID deals that were pushed over the finish line with both sides of the deal willing to compromise to get it done. Post-COVID deals hitting the market have been sparse, with a few exceptions being smaller essential retailer anchored centers that have a very specific reason to consider a sale. There has been very little capitulation between buyers and sellers in the bid-ask at this point. We anticipate that come the fourth quarter and into the early parts of 2021, there may be some private owners and operators that ultimately make the decision to be market sellers. That being said, we are starting to see investment opportunities loosening up in two distinct categories. First, with our existing retailers. Liquidity is more important than ever, regardless of what category they operate within. and all are looking to bolster cash and strengthen their balance sheets. We have a proven history of unlocking value and working with retailers to weather a crisis and have started having multiple discussions around mutually beneficial ways to work with those companies that are real estate rich. Between owned stores and distribution centers, there is substantial value in their holdings that can be used to enhance value for their business while providing a solid growing income stream for us. The second category is with existing owners in need of offensive growth capital. In many cases, the traditional sources of financing have dried up for retail property owners. With the exception of down the fairway, neighborhood grocery anchored, or very strong credit junior lineups, lenders have become extremely cautious during this pandemic. For those like Kimco with liquidity already raised, it presents the option to invest rescue capital to those in need. And this is not specific to distressed or struggling properties. This includes major market centers with growth opportunities that need capital to execute on the vision. Whether coming in as a joint venture partner or a lender, there are excellent real estate locations that require investment capital, which we can assist with, and we're having those conversations regularly. As for an update on our exploration of an investment vehicle, we have had productive conversations with multiple outside capital sources that are interested in partnering with Kimco on unique opportunities. Because this set of opportunities are wide and varied, we continue to evaluate different structures that best reward Kimco shareholders. We will have more updates as the plus business pipeline unfolds. While we will be thoughtful and opportunistic with where we place that capital, we are starting to build a potential pipeline for these initiatives. We believe it will take time and patience But given our knowledge of the sector and broad relationships, we anticipate being able to unlock value for our shareholders in the coming years with this investment approach. Now, let me pass the call off to Glenn for the financial details of the quarter.