Kimco Realty : Q1 2021 Kimco Realty Corp Earnings Conference Call Transcript

Corrected Transcript

29-Apr-2021

Kimco Realty Corp. (KIM)

Q1 2021 Earnings Call

	Total Pages: 22
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2021 Earnings Call	29-Apr-2021

CORPORATE PARTICIPANTS

David F. Bujnicki	Glenn Gary Cohen
Senior Vice President-Investor Relations & Strategy, Kimco Realty Corp.	Chief Financial Officer, Treasurer & Executive Vice President, Kimco
Conor C. Flynn	Realty Corp.
David Jamieson
Chief Executive Officer & Director, Kimco Realty Corp.
Ross Cooper	Chief Operating Officer & Executive Vice President, Kimco Realty Corp.
President & Chief Investment Officer, Kimco Realty Corp.

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OTHER PARTICIPANTS

Richard Hill	Ki Bin Kim
Analyst, Morgan Stanley & Co. LLC	Analyst, Truist Securities, Inc.
Derek Johnston	Floris van Dijkum
Analyst, Deutsche Bank Securities, Inc.	Analyst, Compass Point Research & Trading LLC
Alexander Goldfarb	Tamara Fique
Analyst, Piper Sandler & Co.	Analyst, Wells Fargo Securities LLC
Craig Schmidt	Linda Tsai
Analyst, BofA Securities, Inc.	Analyst, Jefferies LLC
Lili Peng	Greg McGinniss
Analyst, BMO Capital Markets Corp.	Analyst, Scotia Capital (USA), Inc.
Caitlin Burrows
Analyst, Goldman Sachs & Co. LLC

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2021 Earnings Call	29-Apr-2021

MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to Kimco First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to David Bujnicki. Please go ahead, sir.

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David F. Bujnicki

Senior Vice President-Investor Relations & Strategy, Kimco Realty Corp.

Good morning and thank you for joining Kimco's first quarter earnings call. The Kimco management team participating on the call today include Conor Flynn, Kimco's CEO; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, our CFO; David Jamieson, Kimco's Chief Operating Officer; as well as other members of our executive team that are also available to answer questions during the call.

It is important to note that we will need to keep this call focused on Kimco's first quarter earnings results and outlook as a standalone company with more information forthcoming when the merger proxy statement is filed with the SEC. As a reminder, statements made during the course of this call may be deemed forward-looking and 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 will 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 Conor.

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Conor C. Flynn

Chief Executive Officer & Director, Kimco Realty Corp.

Good morning, and thanks for joining us today. Today, I will focus my remarks on our leasing results, the supply and demand dynamics surrounding those results and the exciting strategic direction we are taking the organization. Ross will cover the transaction market, and Glenn will cover the quarterly numbers and our updated guidance.

2021 is off to a refreshing and good start with robust demand for space in our last-mile,open-air, grocery- anchored portfolio coming from both well capitalized omni-channel tenants seeking more market share as well as some smaller businesses that have regrouped and are prepared to reinvest in their business model. The largest leasing demand categories include restaurants, personal care, fitness, and dollar stores. We also see healthy activity and have consummated multiple leases with grocery stores, off-price, and pet supply retailers.

Our leasing volume continued to build from the record setting trend last quarter. Our new lease count was 121, totaling 586,000 square feet. This exceeds both last quarter and the prior year courters. Of particular note, the

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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2021 Earnings Call	29-Apr-2021

586,000 square feet of volume surpassed our five-year first quarter average for new lease GLA of 506,000 square feet. And new lease spreads finished at a positive 8.2% pro rata. We closed the quarter with 237 renewals and options, totaling 2.2 million square feet with GLA exceeding the quarter sequentially and the prior year quarter. Renewal and auction spreads finished at 6.4% pro rata. These spreads continue to reflect the recovery underway and the pricing power inherent in the quality of our portfolio.

Conversely, our ability to have withstood the impact of the pandemic reflects the defensive nature and strength of our recurring cash flows. From a supply and demand perspective, the reality is that due to the speed of the recovery, pandemic-induced vacancies were short lived with limited new supply, market rents never adjusted down in any meaningful way. So, when the demand snap back, we generated positive spreads. While our occupancy dipped slightly from year end to 93.5%, it strengthened as we moved through the quarter. It is our intent to continue expanding occupancy and we are encouraged by multiple demand factors playing to the strength of our last-mile location.

Our job is clear, focus on the blocking and tackling of leasing, work with best-in-class retailers, enhance the merchandising mix and let the numbers speak for themselves as we strengthen the resiliency of our cash flows. Our first, second and third priorities are leasing, leasing, leasing. And we continue to believe we are in the early innings of this reopening and recovery. In addition to leasing, we are prioritizing our smaller redevelopments that average double-digit returns to create an additional organic growth driver. Long-term, we believe our entitlement program will continue to create shareholder value as we unlock the highest and best use of our real estate.

The pandemic has both validated and strengthened our conviction and our strategic vision to concentrate our open-air,grocery-anchored, and mixed-use portfolio in the top MSA across the country. Tenants no longer look at the last-mile stores simply a retail destination rather its value to retailers is now viewed holistically providing distribution, fulfillment, and retail. In valuing a location, retailers assess their ability to integrate e-commerce in bricks-and-mortar to give the customer what they demand. Convenience, value, and a fulfilling experience continues to point to the last-mile shopping center as mission critical for both consumers and retailers.

Our platform is well-positioned for growth and with that growth will come further debt reduction and other benefits of scale. We are enthused about the opportunities ahead yet recognize the challenges involved. We remain committed to prioritizing ESG initiatives and supporting our tenants and local communities as we continue to navigate the pandemic and beyond.

I'd also like to touch on the exciting recent news regarding our highly strategic merger with Weingarten, a transaction that we expect to unlock considerable value in some of the highest growth markets in the country. By coming together, we will be the nation's preeminent open-airgrocery-anchored shopping center in mixed-use real estate platform. With our focus on these last-mile locations and increased scale in our targeted high growth sunbelt markets, this transaction will significantly strengthen and enhance our portfolio quality to further gain market share and to make Kimco even more valuable to all of our tenants.

In closing, Kimco's open-air and grocery-anchored portfolio, diverse tenant mix, targeted geographic presence in the strongest growth markets in the country, and improving balance sheet provide us with a long runway for growth as we move ahead. Needless to say, the entire organization is generally energized by our efforts to build shareholder value.

With that, I'll turn the call over to Ross.
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Kimco Realty Corp. (KIM)	Corrected Transcript
Q1 2021 Earnings Call	29-Apr-2021

Ross Cooper

President & Chief Investment Officer, Kimco Realty Corp.

Thank you, Conor, and good morning. What a difference a quarter makes. With continued recovery from the pandemic, vaccination rollout, and reduced capacity restrictions across the country, we have seen optimism building from retailers, consumers, and real estate investors at the highest levels since the pandemic began almost 14 months ago. Specific to the transaction [indiscernible] (00:07:42) industry volume while still off nearly 40% in the first quarter of 2021 compared to 2020 has seen a meaningful uptick from the back half of 2020. The conviction and the stability of property rent rolls and by extension cash flows has grown beyond only the essential retailers and now includes other categories that were much less clear previously. There is no doubt the grocery- anchored shopping center is still the most in demand category of retail and continues to command the most aggressive pricing and lowest cap rates. Furthermore, open-air is valued at an even higher premium. Recent transactions with more specialty and lifestyle components in addition to traditional power centers have given transparency to the value and stability that our approach provides.

Multiple grocery-anchored deals have transacted at sub 6% cap rates in Dallas, South Florida, California, Philadelphia, and Seattle to name a few. There are also no signs of investor demand waning for that product type. We anticipate bidding to become even more aggressive as the spread of cap rates to interest rates remains wide for our asset class particularly when compared to industrial, multi-family,self-storage, and others. More recently, aggressive bidding extending beyond the bread-and-butter neighborhood products is starting to emerge. Two recent deals that have a grocery store but also a significant restaurant and entertainment component saw bidding wars with multiple rounds of offers and pricing well beyond initial expectations. These properties located in Dallas and Denver have the mix of grocery traffic, restaurants and entertainment, last-mile infill locations, and future densification opportunities that investors are excited about.

On the financing side, an equally important observation is the re-emergence of the traditional lender in the space. While the down the fairway grocery-anchored assets have been financeable throughout the pandemic, lenders were requiring significant holdbacks and structure around deals with perceived risk. As positive trends continue to emerge, that is having direct impact on the transaction market with more deals getting across the finish line at superior pricing and terms. With renewed optimism and conviction comes a vibrant transactions market in which we will remain a disciplined player and we expect to see deal velocity continue to accelerate which is a great sign for the continued recovery of our industry.

Now, on to Glenn for the financial results for the quarter.

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Glenn Gary Cohen

Chief Financial Officer, Treasurer & Executive Vice President, Kimco Realty Corp.

Thanks, Ross, and good morning. The positive results we drove in the fourth quarter last year continued into the first quarter of 2021. With the backdrop of an improving economy and strong leasing velocity, our solid performance was highlighted by improved rent collections and lower credit loss relative to the fourth quarter last year. Our balance sheet metrics also strengthened. We continue to benefit from all the capital markets activity we undertook the past 24 months to enhance our financial structure.

Now, for some details on first quarter results. NAREIT FFO was $144.3 million with $0.33 per diluted share for the first quarter 2021 as compared to $160.5 million or $0.37 per diluted share for the first quarter of the prior year. The reduction was mainly driven by lower pro rata NOI of $13.6 million due to COVID-related rent abatements and credit loss, as well as the impact of lower occupancy on net recovery income, below market rent recaptures, and straight-line rent. These NOI reductions were offset by a $5.5 million onetime benefit from lease terminations.

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