Kimco Realty Corporation (HC)

Greetings and welcome to the Kimco Realty First Quarter 2023 Earnings Conference Call. At this time, all participants are in 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 then zero on your telephone keypad. If you would like to ask a question, please press star then one on your telephone keypad. A confirmation channel will indicate your line is in the question queue. You can press star then 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 hands up before pressing the keys. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mr. David Bujnicki, Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bujnicki. 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 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 our quarterly supplemental financial information on the Kimco Investor Relations 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. With that, I'll turn the call over to Connor.

Good morning, and thank you for joining us today. I will begin with an overview of the leasing environment and share how we are strategically well-positioned for long-term growth. Ross will then cover the transaction market, and Glenn will close with our key performance metrics and updated guidance. We are off to a great start to the year with solid first quarter results, including over 4.5 million square feet of leasing as we benefited from our combination of high quality grocery anchored assets, emphasizing off price retail and everyday essentials in first ring suburbs. That makes us uniquely positioned to benefit from what we believe to be longer term trends relating to consumers and retail strategies. We accomplished this leasing in the face of high interest rates, bank failures, signs of a weakening economy, and troubled retailers. Our dedicated team and resilient portfolio not only withstood these pressures, but outperformed. First, the consumer. While inflation remains stubborn, the Kimco shopper remains sturdy as we continue to see healthy traffic reported across our portfolio. According to our large national retailers, the demand for essential goods, services, and groceries continues to be strong. In addition, The flexible hybrid work environment is creating more opportunity for shoppers to frequent our centers. Finally, omnichannel shopping continues to outperform pure online shopping, as optionality is a winning formula by providing consumers the convenience of shopping online and picking up or returning at the local store. Requests to expand our nationally recognized curbside pickup program continue to grow from our entire stable of national, regional, and small shop tenants. In addition to the resilient consumer, leasing demand and the ability to push rents continues at a robust pace due to the lack of new supply and high barriers to entry at our highly desirable locations. The demand for new space is well diversified, with a mix of new deals this quarter spread among off-price, grocery, sporting goods, fitness, health and wellness, medical, and fast casual dining. As part of our focus on attaining the highest and best use of our properties, We also secured two new entrants to the Kimco portfolio this quarter, a Tesla dealership in Austin, Texas, and a market by Macy's in San Diego. Strong leasing, supported by this robust, well-rounded demand, is reflected in our new leasing spreads of 44%, a five-year high. Occupancy busts the seasonality trend of dipping after the holidays and gained 10 basis points, thanks to our team's stellar efforts and our small shop leasing initiatives. During the first quarter, we anticipated some space coming back from underperforming retailers, including Bed Bath & Beyond, who just filed for bankruptcy this past week. This has been widely expected, and we've been well prepared for this outcome as we have actively marketed all of our bed bath spaces for some time. To highlight our successful efforts, we started the year with 30 bed bath leases. During the first quarter, we sold one location and released three boxes, including two we recaptured with a mark-to-market spread of 24%. Regarding the remaining 26 Bed Bath leases, we are either in lease or LOI negotiations on 22 locations, with a mark-to-market spread similar to what we have executed to date, which exemplifies the strong activity from a diverse pool of retailers looking to expand. The remaining four locations are either being marketed for lease or are potential redevelopment candidates. The lack of supply and inability to meet new store targets is a constant refrain from our retailers during our portfolio reviews and remains key catalysts for the lease up of these locations. It is also why our retention rates for the portfolio continue to remain well above historical levels at 90% this quarter. With this pace of retention and the strong leasing demand, we believe that over the long term, we should see an improved underlying growth rate for our business. Further enhancing the value of our first string suburb locations is the increased demand for industrial and residential assets. This competition for land or conversions makes the cost of new retail development even more prohibitive, which will further reduce supply for potential new retail. And when you combine the rising rents in the residential sectors with the competitive redevelopment advantages at our existing locations in the first ring suburbs, the opportunity to add more mixed use density provides us the long-term opportunity to drive further growth and value creation. In the end, strategically, we are well positioned for what could be a choppy second half of the year and beyond. With our open-air, high-quality, growth-striankered portfolio producing record results, our leverage metrics at all-time lows, along with our significant cash position, we are positioned for growth and will look to be opportunistic when others cannot in our quest to outperform on a sustained basis. Ross?