Kimco Realty Corporation (HC)

Greetings and welcome to the Kimco Realty Corporation's first 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded and will be limited to 60 minutes. It is now my pleasure to introduce your host, Mr. David Bushnicki. Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bushnicki. You may begin.

Good morning, and thank you for joining Kimco's quarterly 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 Jameson, 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 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 Connor.

Good morning, and thanks for joining us today. I'm going to lead off the call with a brief review of the current retail environment, highlight a few of our Q1 accomplishments, and provide an update on our overall strategy. Ross will describe the transaction market and the high demand for our open-air and mixed-use products. And as usual, Glenn will cover our financial metrics and provide updated guidance for the year ahead. 2022 is off to a very good start. The integration of the Weingarten merger is now complete, and as anticipated, our scale, geographic clustering, and operational platform is stronger than ever. This success is occurring at the same time that retailers are taking a fresh look at their real estate portfolios and concluding that the physical store has proven to be the linchpin of retail. To put that in perspective, it wasn't long ago when many people thought that the physical store was on the verge of extinction and that e-commerce was the be-all, end-all for retail. Now retailers are looking at the physical store through a new lens, a lens that is focused on optimizing the store for retail, e-commerce, and distribution. Tenants are revising their capital spending budgets to address the omnichannel revolution and e-commerce platforms. They are readily investing capital on refurbishment, expansion, fulfillment, and last mile distribution. When retailers evaluate their real estate, they no longer separate their warehouse and distribution needs from their sales requirements. Today, leading retailers are taking a holistic approach to determine the best locations to ultimately serve their customers. Indeed, this integrative approach is the dominant recurring theme during our portfolio reviews with retailers and is creating more demand for optimal locations. We are seeing renewal and new deal demand for well-located space that is not only suitable for generating in-store sales, but is also conducive to last-mile distribution and fulfillment. Target Stores is a bellwether for this new approach. with more than 95% of their total sales, physical and online, being fulfilled through their store base. The result is a tremendous halo and value add to their existing and growing store fleet. This trend of increased capital spending by retailers and the renewed focus on and demand for quality locations is good news for Kimco. Higher retention, lack of new supply, quality real estate, and a well-coordinated team effort are strengthening pricing power and accelerating the speed of recovery throughout our portfolio. The result is higher cash flow, greater leasing velocity, improved net effective rent, and growth in recurring FFO. Our incredible team produced a record 475 renewals, totaling 3.9 million square feet, and the renewal and option spreads of 6.4% continue to underscore the supply and demand dynamic I just described. Specifically, New first quarter leasing was strong, producing 178 new deals, totaling 719,000 square feet, and our pricing power is reflected by a solid new leasing spread of 18.6%. Retention levels remain high, with lack of new supply putting more value on existing stores and resulting in more remodels and lease extensions with minimal capital required from Kimco. It is worth noting that positive net absorption in the first quarter historically has been a rarity, And yet our superb leasing team generated a 30 basis point increase in our pro rata occupancy, which now stands at 94.7%. This is our highest first quarter sequential occupancy gain in over 10 years. Year over year occupancy is off 120 basis points. Strategically, we continue to focus on enhancing our already strong open air grocery anchored and mixed use portfolio in our top markets. Ross and his team are constantly analyzing new potential acquisitions as we look for the best fit for our portfolio. We've also made excellent progress on entitlements. In the first quarter, we entitled 1,300 apartment units in three of our core markets, Denver, Fort Lauderdale, and Washington, D.C. Our mixed-use assets are benefiting from the dual recovery in both the apartment and retail sectors. All this activity gives us flexibility and optionality to create FFO growth and shareholder value. While we are proud of our results, we recognize it is not all smooth sailing. The war in Ukraine, the lockdowns in China, the rise in COVID numbers, and the reemergence of mask mandates in certain areas present real challenges. The consumer is being stretched by a record inflationary environment at the gas pump and at the grocery store. Despite these headwinds, traffic continues to flow to our grocery-anchored neighborhood and necessity-based centers. Traffic in the first quarter of 2022 was 108.9% relative to the same period in 2021, as the value provided by our essential based retailers remains as important as ever. In closing, I want to thank our entire organization. They respond to every challenge. We tirelessly maintain our do the right thing culture. Their collective drive has enabled us to push our recovery faster than we anticipated and execute our strategy with precision. It feels like we are just getting started, which makes it so exciting to be a part of this great team. And with that, I'll turn it over to Ross.