In the Kimco Realty Second Quarter 2023 Earnings Conference Call, David Bujnicki, the Senior Vice President of Investor Relations and Strategy, welcomed all participants and noted that any forward-looking statements made during the call may differ from the company's actual results. Conor Flynn, the CEO, will provide an overview of the leasing environment, highlight notable accomplishments, and provide an update on the company's longer term strategy.

Kimco experienced strong leasing activity in the second quarter, with 153 new leases totaling 650,000 square feet, a new leasing spread of 25.3%, 485 total deals totaling 2.7 million square feet, and a combined spread of 9.9%. Renewals and options spread was 7.6%, with renewals at 6.5% and options at 9.3%. Small businesses grew in the portfolio with occupancy at 91%, only 10 basis points shy of the all-time high, and anchor leases totaled 26, the most in over five years. Overall occupancy for the second quarter was 95.8%.

This paragraph discusses the positive leasing activity that has taken place in the portfolio, including the reduction in anchor occupancy from 97.7% to 10 basis points year-over-year. It also notes that seven Bed Bath & Beyond leases have been released, with a mark-to-market spread of 31%, and that activity is ongoing on the remaining 12 locations. The portfolio has also seen the addition of a new Sprouts grocery store, increasing the percentage of grocery-anchored assets to 82%, and the mixed-use portfolio is also performing well.

Kimco has achieved 2,471 apartments in operations across their portfolio, with over 1,000 apartments under construction and 5,300 entitled, offering a significant pipeline of future densification opportunities. Their recently completed 253-unit apartment complex, The Milton, is already 49% leased and ahead on rental rate and absorption assumptions. Kimco has also been recognized by Forbes as a net zero leader, and has been working to reduce deal costs and build-out times. They are positioned to withstand headwinds and take advantage of opportunities to maximize results for all of their stakeholders.

In the first half of the year, open-air retail transactions were down significantly, however activity in the sector is now warming up. There is strong demand from both institutional and private investors for high quality open-air retail. With over $500 million of cash on the balance sheet, the company is selectively targeting acquisition opportunities and accretive structured investments. Additionally, they are selectively disposing of assets, such as their Christiana, Delaware land parcel which was sold directly to an auto dealership operator.

Ross passed the conversation to Glenn Cohen, who discussed the company's second quarter results. FFO was $243.9 million or $0.39 per diluted share, lower than the previous year's results of $246.4 million or $0.40 per diluted share. Positive NOI growth and strong leasing spreads were offset by higher bad debt expense and rental property expenses. G&A expense and interest expense also increased, while higher interest income and lower dividend income resulted from the sale of Albertsons shares.

In the second quarter, G&A expenses were up due to the Weingarten merger and equity awards, while interest expenses increased due to Weingarten bonds and floating rate debt. Same side NOI was up by 2.3%, largely due to increases in minimum and percentage rents, though it was offset by a rise in credit losses. During the quarter, 7 million shares of ACI stock were sold, resulting in net proceeds of almost $145 million, with a $31 million tax provision. Year-to-date, $282.3 million of ACI stock has been monetized, with $220 million retained for investments and debt reduction. 14.2 million shares of Albertsons were held, with a value of over $310 million, and during the first quarter of 2023 a special dividend of $194.1 million was received and included in net income, but not FFO.

The team and Board are evaluating the amount of a special dividend to be paid by year-end in order to comply with redistribution requirements. At the end of the second quarter of 2023, the consolidated net debt to EBITDA was 5.5x and on a look-through basis, including pro-rata JV debt and perpetual preferred stock outstanding, it was 5.9x, the best level since reporting began. There is $2.5 billion of immediate liquidity and the monetization of Albertsons shares is valued at over $310 million. The FFO per share range is now $1.55 to $1.57. In response to a question from Samir Khanal of Evercore ISI, Conor Flynn and Dave mentioned that the mark-to-market opportunities for Bed Bath is 20% and the capital required to get to that return is unknown.

Conor Flynn is seeing a broad base of demand drivers for Bed Bath boxes, ranging from grocery anchors to best-in-class retailers. He is seeing expansion plans for 24 and 25, and estimates the deal cost for boxes around 20,000 to 40,000 square feet to be around $60 to $70 per foot.

Ross Cooper addresses the question of what opportunities and catalysts are present for acquiring centers in the current market. He explains that traditional grocers, specialty grocers, ethnic grocers, and off-price retailers are all ramping up expansion plans, creating a great demand for anchor space. Additionally, small shop demand is also strong, driving occupancy near all-time highs. As far as capital, the company has $500 million in cash and $300 million in Albertsons shares. Pricing for transactions is much closer, and cap rates are in the ballpark for what is being pursued.

Ross Cooper is addressing Craig Mailman's question about the acquisition market and potential opportunities in the structured finance and equity side of things. He mentions that there is more quality grocery hitting the market and that larger assets are beginning to hit the market as well. He also mentions that the company is still committed to a net acquisition spread of around $100 million, but that they have certain uses for that cash already allocated, such as redevelopment spend, taxes on ACI sales, and special dividends. He concludes by saying that they are in a unique position to be aggressive on the acquisition side, while still maintaining a strong level of discipline.

Conor Flynn and Ross Cooper discussed the cadence of same-store NOI post Bed Bath auction. They mentioned that the guidance for the year remained the same at 1% to 2%. They also noted that there would be headwinds due to the bankruptcies of Bed Bath, and that the downtime for backfilling boxes could range from 9 to 12 months.

Kimco is naming a tower The Milton, and Connor joked that one day they would have The Conor. Alexander Goldfarb asked about insurance for Kimco's tenants and whether they could avail themselves of Kimco's wrapper to get lower insurance rates or business interruption insurance.

Glenn Cohen and Conor Flynn discuss ways in which they can keep costs down for their tenants, such as using a blanket policy. They also mention the benefit of portfolio diversity when it comes to pricing in the insurance market. Haendel St. Juste asks about the current market cap rates for the quality of assets they are interested in buying, to which there is no specific answer.

Glenn Cohen discusses the different dynamics of larger and smaller shopping centers, and notes that larger check sizes often lead to higher yields due to fewer buyers who can cut the check without finance contingencies. He also notes that the strong fundamentals of the shopping center sector have been noticed by institutions, and that sellers are able to raise capital while still maintaining relatively strong pricing.

Conor Flynn explains that there is a new paradigm of retail, with demand for multiple size categories, and no new supply for the past 12 years. He believes that this will lead to a snowball effect of more retailers looking to locate closer to the consumer. He believes that this will lead to occupancy levels higher than the all-time high Kimco has seen in the past.

Conor Flynn discussed the Bed Bath and Tuesday Morning boxes and how long it will take to fully lease them. He mentioned that 10 of the boxes have been resolved, with seven leased and three picked up in auctions. There is currently activity on seven leases in process and a number of LOIs. He also discussed the multi-use and mix-use of the shopping center, and how the apartments and retail can thrive off of each other.

Glenn Cohen discusses the occupancy rate of the company, which is currently at 300 basis points. He explains that the occupancy rate can be increased by signing new leases and decreased by losing occupancy. He also mentions that the company has built in potential lost rent from unbudgeted vacancies into their guidance and remain comfortable with the range. Lastly, he explains that the occupancy rate can be expanded or contracted through new lease activity and the loss of occupancy.

The expansion of new deals signed this quarter and openings of new stores will impact the lease economics in the near term. The team is working to reduce the execution to RCD dates, which have seen a 7% decline over the past two years due to supply chain and permitting issues. The team is working to get plans and permits in place early on in the process to improve the situation.

Glenn Cohen explains that landlords have had leverage over tenants for the past few years due to limited supply. However, due to COVID and Bed Bath inventory, tenants have been able to expand and penetrate shopping centers that were previously unavailable. Negotiations are focused on favorable terms for both parties and long-term partnerships. Outside of rent, landlords are also negotiating costs and opening components for retail tenants to ensure their growth.

Conor Flynn discussed the improvement in annual escalations from 2% to 3%, and Ronald Kamdem asked questions about same store NOI and interest expense for the following year. Glenn Cohen answered that bad debt expense should not have a dramatic impact on same side NOI growth, and that the fair market value amortization will continue to burn off, resulting in higher interest expense.

Glenn Cohen of the company discussed the strong interest from institutional investors in open-air shopping centers, noting that the fundamentals of the business remain strong and that buyers on the private and institutional sides are confident in the risk-adjusted returns. He also mentioned that there is no shortage of capital available, as long as the combination of risk-adjusted return is fair.

Glenn Cohen and Kathleen Thayer discussed strategies to reduce the amount of cash leaving for a special dividend and estimated that the payment will be made by the end of the year. They also discussed the minimal growth in taxes and the lower recovery ratio. Thayer noted that there are no anomalies in terms of real estate taxes and that they expect to see a slight increase year-to-year. They also mentioned that insurance expenses and inflation are causing certain categories to increase.

Conor Flynn discussed the expected dip in occupancy due to Bed Bath, but expressed confidence in the activity from other boxes and small shops. Glenn Cohen then discussed the criteria for their Structured Investment Program, which includes the quality of the real estate, the sponsor, and the operator.

The Structured Investment Program is a disciplined approach that has allowed the company to make investments with returns of at least double-digit returns. The company has the right-of-first refusal on these investments, allowing them to build a pipeline for future acquisitions. This quarter, no new deals were closed as nothing fit the target, but the company is expecting to close on some opportunities in the back half of the year.

This summary was generated with AI and may contain some inaccuracies.