Kimco Realty Corporation (HC)

Greetings and welcome to the Kimco Realty Corporation's second 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. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, this conference is being recorded. 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 your presentation at this time.

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. I will lead off today's call with an update on our strategic initiatives and a review of our Q2 leasing highlights. Ross will cover the transaction market and our recent activity, and Glenn will follow with our financial metrics and our updated guidance. We had another solid quarter thanks to the efforts of our outstanding team, the high-quality nature of our portfolio, and our disciplined strategy. The initiatives we put in place more than five years ago to upgrade the quality of our portfolio, streamline our organization, and enhance our platform continue to drive exceptional results. Our investments in leasing and property management, human capital, ESG, community outreach, technology, data analytics, and entitlements have generated solid positive returns and created value for all of our stakeholders. We remain focused on executing our plan and putting up numbers that help to further differentiate Kimco and our approach. It is with cautious optimism that we highlight our considerable accomplishments this past quarter, while remaining cognizant of the macro issues impacting our country, our economy, our retailers, and our consumers, While our strong second quarter numbers are reflective, our leasing team continues to report that demand for space across our portfolio remains robust and should continue to grow. For the right space and the right location, pricing power remains strong, even in this period of economic uncertainty. One of the key drivers is our focus on last mile locations, which are seeing positive traffic patterns at 101.3% relative to the same period last year. The Kimco consumer lives in the first-string suburb of the top major metro markets, where employment and spending power remain strong. While we can't ignore the impact of inflation, the consumer remains resilient for now, and more importantly, our portfolio focused on essential goods and services puts us in a sound position to better withstand the ever-changing environment. On the leasing front, ProAda Occupancy finished up 40 basis points, reaching 95.1% due to positive net absorption. Year-over-year, pro rata occupancy is up 120 basis points. Anchor occupancy is up 30 basis points, quarter-over-quarter to 97.6%, and up 70 basis points year-over-year. Small shop occupancy is up 80 basis points quarter-over-quarter to 89.2%, and up 370 basis points year-over-year. That is our largest year-over-year increase in small shop occupancy in over 10 years. During the quarter, we signed 150 new leases, totaling 711,000 square feet. Our new lease spread was 16.6%, with notable positive drivers coming from medical, off-price, beauty, and salon services. We completed the quarter with 348 renewals and options, totaling 1.6 million square feet. The second quarter renewals and options spread was 5.6%, with options ending at 6.4% and renewals at 5%. Total second quarter deal volume was 498 deals, totaling 2.3 million square feet, with a combined leasing spread of 7.1%. We executed two new grocery leases this quarter, which helped us cross the milestone of 80% of annual base rent coming from grocery-anchored properties ahead of schedule. And we continue on the path to hit our goal of 85% by 2025. The benefits of our portfolio transformation to a dominant grocery-anchored portfolio in the top metro markets are numerous. Most notably, perhaps through the robust small shop leasing activity, driven by the halo effect of our strong grocery anchors, which helps drive cross-shopping and more leasing demand and pricing power. An important takeaway this quarter is that our portfolio retention rates continue to shine. Our portfolio GLA retention rate during the second quarter was 93%, with anchors and small shops both 10% above their respective five-year average retention rate. The high retention rate is why we only had 91 total vacates for 223,000 square feet this quarter, making it the lowest GLA vacated during a quarter over the past 10 years. Further, we're maintaining pricing power as 96% of all renewals and options were at a positive rent spread. We believe these high retention rates are directly related to our efforts to optimize our last mile locations for our retailers and further highlight the value proposition of our portfolios. We also believe that if we continue to make the last-mile store more valuable, over the long term, our retention rates will continue to improve, occupancy will rise, and tenant churn and capex will decrease, all of which will result in a higher long-term growth rate for the portfolio. In closing, our strategy remains straightforward. Focus on leasing, work to expedite our tenant openings, entitle our assets for future density opportunities, maintain a strong balance sheet and liquidity position, and be patient. identifying investment opportunities in which Kimco is uniquely positioned to add value. We believe these initiatives will lead us to sector outperformance and reinforce the Kimco differentiator that drives total shareholder return. Ross?