Kimco Realty Corporation (HC)

Greetings and welcome to the Kinco Realty Corporation's third 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 and zero on your telephone keypad. If you'd like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two 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, the conference is being recorded. It is now my pleasure to introduce your host, Mr. David Bojnicki, Senior Vice President of Investor Relations and Strategy. Thank you. Mr. Bojnicki, 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 Jamison, 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 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.

Thanks, Dave. Today, I'll kick things off with a brief update on our strong operating fundamentals and our strategic plan as we navigate what appears to be an uncertain and challenging macroeconomic environment. Ross will follow with an update on the transaction market, and Glenn will close with our financial metrics and updated guidance. First, our results. Another strong quarter continues to validate the quality of our portfolio and our talented team that each continue to shine. These two constants will continue to serve us, regardless of the ever-changing external environment. The current supply and demand landscape continues to benefit Kimco as retailers prioritize our portfolio of open-air, high-quality, grocery-anchored shopping centers and mixed-use assets positioned in first-ring, last-mile suburbs of major metro markets. Sequentially, total occupancy finished up 20 basis points pro rata to 95.3%. And year over year, occupancy was up 120 basis points due to positive net absorption. Anchor occupancy increased 20 basis points quarter over quarter to 97.8% and was up 90 basis points year over year. Small shop occupancy ended flat sequentially at 89.2% and was up 190 basis points year over year. It is worth noting that small shop occupancy would have been up 10 basis points this quarter, but for some vacancies associated with our recent acquisition of two grocery anchored centers in Fishtown, Philadelphia, and Massapequa, Long Island, which had a 10 basis point impact on our overall small shop vacancy. We view these vacancies as future upside and have leasing activity on all 10 of the small shops at these properties. During the quarter, we signed 146 new leases, totaling 620,000 square feet. Our new lease rent spread was 16.5%, with Burlington replacing a vacating Bed Bath & Beyond in the Southwest, a notable driver. This is indicative of the embedded value in many of our older leases, including that form of our Bed Bath & Beyond boxes, which have a mark-to-market upside ranging from 15% to 20%. In the event we are able to recapture these Bed Bath & Beyond spaces, we have a variety of backfill candidates, such as grocers, dominant omnichannel players, or off-price retailers, many of which have already shown interest in those boxes. With virtually no new supply in over a decade, our strong credit tenants are finding it difficult to meet their new store opening targets and have been aggressively pursuing opportunities. Nothing accentuates the supply and demand imbalance more than the heightened retention levels we continue to experience. During the quarter, we closed 315 renewals and options, totaling 1.5 million square feet. Third quarter renewals and options spread with 6.2%, with options ending at 7.9% and renewals at 5.2%. We reported only 111 vacates, totaling 430,000 square feet this quarter, which is almost 20% lower than the five-year historical average for third quarter vacates. Overall, third quarter deal volume was a record at 461 deals, totaling 2.1 million square feet with a combined spread of 7.5%. Notwithstanding the favorable demand, we continue to monitor the quality of our tenant base and remain confident that the tenants who have endured the pandemic with Kimco are battle-tested and of a higher credit quality. We are mindful of the current inflationary environment and the potential shift in consumer behavior. With that in mind, I want to highlight our strategic priorities that have already put us in a strong position and which we believe will enable us to continue to outperform. At Kimco, we always focus on creating long-term value. Building a business for multiple cycles, multiple black swan events is not easy. In the last five years, it seems we have experienced more frequent once-in-a-lifetime events than in previous decades combined. And a critical component of our success in navigating these occurrences all starts with our team and our culture. We are fortunate to have a seasoned, energetic, and diverse team and a board of directors that understands it takes resolve and patience to allow a strategic plan to be executed. We prioritize integrity where doing the right thing is embedded in the culture and working together through adversity can be highly rewarding.