Kimco Realty Corporation (HC)

Good day and welcome to the KINCO Realty second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on your touchtone phone. To withdraw your question, press star then two. Please note this event is being recorded. I would now like to turn the conference over to Dave Bucznicki. Please go ahead.

Good morning, and thank you for joining Kimco's second quarter 2021 earnings call. The Kimco management team participating on the call today include Connor Flynn, Kimco's CEO, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFO, Dave Jamison, Kimco's Chief Operating Officer, as well as other members of Kimco's 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 IR website. And with that, I'll turn the call over to Connor.

Good morning, and thanks for joining us. Today, I'll focus my remarks on our operating results, the supply and demand dynamics surrounding those results, the strategic direction we are taking the organization, and the powerful position Kimco will have upon the closing of our merger with Weingarten. Ross will then provide some perspective on the transaction market, and Glenn will provide additional financial insight on the quarter, along with our updated guidance. As I have often mentioned, our core focus has been and will continue to be on leasing, leasing, leasing. It fuels our growth, validates the quality of our portfolio, strengthens our balance sheet, reduces risk, and is a catalyst to overcome pandemic-induced disruption. Our second quarter leasing activity and overall results continue to build upon the success that began earlier this year, as we leased 1.8 million square feet and signed 333 leases. This leasing included 139 new leases of GLA exceeding the prior sequential quarter. Overall occupancy finished at 93.9%, up 40 basis points, while our new leasing spreads of 9.2% and renewal spreads of 4.7% resulted in a record 42 quarters or 10 years in a row of positive spreads. The combination of record leasing demand and a five-year low of new vacancies continue to drive the earlier-than-anticipated occupancy recovery for Kimco. Traffic at our properties is back to 2019 levels. and the healthy leasing market reflects the reopening of the economy and the rush by tenants to capture market share is apparent as they pursue our high-quality locations. Moreover, in our attractive and strategically selected markets, we do not anticipate any material new supply in the near term to impact our pricing power. Robust demand for Anchor Space continues across our portfolio. Centers with a grocery component have outperformed during the pandemic and continue to lead the rebound. We're also seeing data on restaurants that show people are eager to go out and eat again, but the Sun Belt states outperformance. Similar trends with fitness, where traffic is coming back quickly. On the store openings, off-price continues to be a leading source of demand, but we're also seeing solid demand from furniture, home goods, pet supply, hobby, health and wellness, including discount fitness, just to name a few. Our anchor occupancy finished the quarter at 96.9%, up 70 basis points. which is the single largest quarterly gain since we started reporting anchor occupancy 10 years ago. Small shop demand also continues to recover, albeit at a slower pace. The small shop demand that's now building is coming from franchise quick service restaurants, beauty, hair and nail salons, medical, and other services. While small shop occupancy did finish down 30 basis points to end at 85.5%, it was impacted from the inclusion of Dania phases two and three into occupancy. If not for this, small shop occupancy would have actually increased sequentially by 30 basis points during the second quarter, and we remain confident that the smaller tenants will gradually accelerate their demand for space as they gain comfort that the recovery from last year's severe disruption is sustainable. Further, the importance of being located as a last mile solution for a multitude of potential tenants continues to grow. Our mission critical last mile brick and mortar locations will prove to be durable solutions for consumers, retailers, and many other businesses that want scale and reach to serve the end consumer. One silver lining of the last year and a half is that it showcased the strength of our repositioned grocery-anchored portfolio, the resiliency of our cash flows, and the strength and diversity of our strong mix of high-credit tenants. As our occupancy recovers, we anticipate EBITDA and FFO growth will follow and bolster our balance sheet metrics. We are also in a unique position to drive earnings results with multiple levers for growth, led by our continued emphasis on leasing and attractive redevelopment opportunities. On the strategic front, the completion of our accretive merger with Weingarten is fast approaching and ahead of schedule. The shareholder votes are scheduled for August 3rd and subject to customary closing conditions. The closing should occur shortly thereafter. With Weingarten's portfolio combined with Kimco's, Following the merger, we will be even more confident in our ability to drive significant and sustained value from this concentrated platform of open-air, grocery-anchored, and mixed-use assets in the leading MSAs across the country. Touching further on the power of the merger, the combined company will continue to focus on operating a dynamic and well-diversified portfolio in these markets, but with greater scale, resources, and embedded opportunities. We expect that the complementary business operations will allow us to extract annualized cost efficiencies while deleveraging our balance sheet. I think it is important to reiterate the scale and reach we will have with our targeted first-ring suburbs of core markets across the Sunbelt. Together, we'll have approximately 550 open-air grocery-anchored shopping centers and mixed-use assets comprising more than 100 million square feet of gross leaseable area. At closing, approximately 82% of the company's total annual base rent will be derived from strategic Sunbelt growth markets and high barrier-to-entry top coastal markets. The combined platform will also have a highly diversified, strong credit tenant base, with the top 10 tenants all essential, industry-leading grocers and best-in-class retailers, with no single tenant representing more than 4% of ABR. And given that we are not completely out of the pandemic woods yet, with the reality and threat of new strains, we believe the combined portfolio, strong balance sheet, and battle-tested team puts us in an even better position to withstand any disruptions to the ongoing recovery. Looking beyond the closing, the Weingarten portfolio brings a largely funded and de-risked development pipeline and presents vast potential in the form of embedded, untapped redevelopment from which we believe we can extract incremental value. Ultimately, we believe this accretive combination will result in enhanced financial strength with the flexibility and resources to efficiently capitalize on the value creation opportunities ahead. While we won't be quantifying the impact until after the transaction is closed, We are highly energized by the opportunities in front of us to maximize value for shareholders. In closing, our team is motivated and executing. As we look forward, our ability to create value will be enhanced in the coming years by our last mile fulfillment opportunities with high growth, high quality, open air grocery anchored shopping centers and mixed use properties that will enable us to realize substantial operating benefits. With that, I will turn the call over to Ross.