The Kimco Realty Third Quarter 2023 Earnings Conference Call is about to begin and all participants will be in listen-only mode. After the presentation, there will be a chance to ask questions. The call is being recorded and the Kimco management team, including CEO Conor Flynn, will be participating. The team will make reference to non-GAAP financial measures and statements made during the call may be deemed forward-looking. Any technical difficulties will be resolved and additional information will be posted on the IR website. Conor thanks everyone for joining the call.

The author begins by acknowledging the challenges of the current macro environment, including high interest rates, tenant bankruptcies, and uncertain markets. However, they go on to highlight the strong operating performance of their portfolio, with robust fundamentals and strong demand from tenants. The third quarter results exceeded expectations, leading to an increase in guidance for same site NOI and FFO. The company also achieved high leasing spreads and reached an all-time high in small shop occupancy. While anchor occupancy decreased slightly due to the recapture of Bed Bath & Beyond locations, they were able to re-lease these spaces at a positive spread.

Kimco's remaining Bed Bath boxes are performing well despite headwinds, and the company is encouraged by strong demand for well-located retail spaces. The company's signed, but not open spread has widened, and they are excited about their pending RPT transaction. However, they are also facing challenges such as a rise in interest rates and are focused on generating free cash flow to mitigate balance sheet uncertainty. Overall, Kimco is confident in their ability to drive growth and optimize shareholder value.

The current market conditions favor well-capitalized owners and operators, and Kimco was able to take advantage of this by acquiring a dominant grocery anchored lifestyle center in Washington DC. The property has excellent demographics and potential for future value and cash flow growth. Kimco was able to negotiate a favorable cap rate due to its ability to close the deal with all cash. The company also announced a merger with RPT Realty, showcasing its platform's ability to negotiate favorable deals.

The company is taking advantage of a unique window of limited competition to make investments. They have seen an increase in discussions and potential opportunities in structured investments in the past 30-60 days. They are being selective in their investments but are excited about the activity during the quarter. The company's strong liquidity and leverage metrics position them well to handle macroeconomic headwinds. FFO for the third quarter was $248.6 million, with an increase in pro rata NOI due to higher consolidated minimum rent offset by lower LTA income and straight-line rent.

The company's bad debt expense increased by $2.8 million due to a more normalized credit loss level, but overall credit loss was within their guidance assumption. Pro rata interest expense was also higher due to lower fair market value amortization and higher interest rates. The company incurred costs related to a merger and received a net benefit from the liquidation of a pension plan. Same-site NOI grew by 2.6% in the third quarter, driven by higher minimum rents and other rental revenues. The company's consolidated net debt to EBITDA remained at 5.5 times, and on a look through basis, it was 5.9 times.

The company's liquidity position is strong with over $2.4 billion in cash and full availability of a $2 billion credit facility. They also recently issued a $500 million bond to address upcoming bond maturities. The company faced some headwinds in the first quarter, but their strong operating portfolio allowed them to overcome them. As a result, they have tightened their FFO per share guidance range for 2023 and improved their credit loss and same-site NOI assumptions.

The company has announced an increase in fourth quarter dividends and received a special dividend from Albertsons. They are evaluating the amount of special dividend needed and will provide a 2024 outlook in the fourth quarter. The company is also limited in discussing the pending merger with RPT, but information is available on their website. They have purchased and sold assets in the quarter and are planning to sell more assets when they acquire RPT.

During the third quarter, there was a lot of activity in the transaction market, with a major acquisition and limited dispositions. The sale of one joint venture property in Southern California at a low cap rate highlights the strength of the market for core grocery centers. However, the company is being cautious in the fourth quarter and does not have any acquisitions planned. Transaction volumes are down 70% year-to-date, but there is still capital being invested, particularly in grocery and power centers. Financing is still available, although at higher rates, and LTVs of 50-60% can still be obtained.

The speaker is optimistic about the fundamentals of their business and believes they can execute their strategy at the right time. They are not revealing their specific plans for targeted RPT dispositions until after the merger, but are encouraged by current market activity and have a strategy in place. They will be more specific about their plans after the merger.

The speaker, Conor Flynn, addresses concerns about the stock performance of Kimco, stating that the company is executing their strategy well and showcasing strong operating results. He also mentions the company's opportunistic approach to taking advantage of market dislocations and emphasizes the health of the shopping center sector, citing low vacancy levels and a low supply of new construction. He concludes by stating that the company will continue to put up strong numbers and remain focused on executing their strategy.

The speaker discusses the positive state of the real estate market, mentioning the lowest vacancy rate in the country and the potential for a high-quality portfolio to bring in profits. They also mention the recent debt deal and the possibility of refinancing debt with a mix of cash and new debt. Despite some changes in rates, they still expect the transaction to be FFO-accretive in the first year.

The speaker discusses the company's strong financial position and flexibility to make necessary changes. The next question is about leasing spreads and specifically the Bed Bath spread, which was stronger than expected. The speaker attributes this to high demand from retailers looking to grow their store count. The costs for these single tenant backfills have been in line and there are still a few remaining boxes that may be occupied by single or split tenants, with healthy spread margins expected.

The speaker is asking about the potential downtime and rent backfill for Bed Bath boxes. The company has 14 boxes accounted for in their pipeline, with a 320 basis point and $52 million impact. The first two Bed Bath boxes have already been backfilled within 12 months, and the rest are expected to be backfilled throughout 2024. The company is also pushing for higher annual escalators and has not encountered any significant pushback.

Kimco CEO Glenn Cohen discusses the company's ability to push rental rates higher in the Sun Belt markets and the strong demand for retail space. He also mentions how the company is regaining leverage in discussions with its anchor tenants by rebalancing co-tenancy provisions and using data to better understand the impact of certain retailers, such as fitness centers. Cohen also highlights the success of the company's repositioning and redevelopment efforts.

The speaker discusses the strong partnerships with retailers and the flexibility of store footprints, which has led to increased demand for smaller spaces. The current market reaction to the company's increasing scale is surprising, given the strong fundamentals of the shopping center industry. The speaker also highlights the company's historical occupancy and leverage ratios, and the potential for further upside in occupancy, especially in regional markets. The upcoming snow pipeline is expected to further improve the company's already record low leverage ratios.

The company is encouraged by the current supply and demand dynamic in their portfolio and is using data analytics to plan for future growth. They are maintaining a low leverage level and are optimistic about the potential for small shop occupancy. The demand for shopping centers is evolving to include a variety of uses, and the company is positioning their portfolio for long-term growth by adding multifamily units and utilizing underutilized parking. They have experienced ups and downs in the retail industry but remain focused on long-term growth.

The speaker discusses the challenges faced by the retail sector, including the retail apocalypse and the COVID pandemic. However, they believe that their company, Kimco, is well positioned to take advantage of opportunities in commercial real estate. They plan to be opportunistic and make generational deals when others are nervous. When it comes to spending, they prioritize deals that are accretive to their cost of capital, and while third party acquisitions may be challenging, they see potential in redevelopments within their portfolio. As the portfolio grows, so do these opportunities.

Conor Flynn, CEO of Kimco Realty, discusses the company's focus on retail redevelopment and leasing, which they believe will continue to exceed their cost of capital. They also plan to be opportunistic with their structured investment program, which requires double-digit returns. When considering their capital allocation, they prioritize each opportunity based on their cost of capital. The company's leverage is at historically low levels, giving them more flexibility in their decision-making. Small shop occupancy has been a bright spot for the company, with interest from both local and national tenants. However, the macro uncertainty is causing longer lease signing times for other property types.

Conor Flynn discusses the bright spots in the small shop sector, including restaurants, specialty foods, health and wellness, and beauty. He also mentions the evolving services category, with an increase in medical uses and franchise-driven concepts. He notes that the mom-and-pop retail landscape has changed, with many starting their businesses as franchises with proven business models. The company's leasing strategy is improving the growth of the portfolio, leading to an enhanced growth profile. The next question from Alec Feygin of Baird focuses on the recent increase in conversations around structured investments.

The company is seeing a pick-up in conversations about their structured investment program and expects more options in 2024. They have increased their rates due to higher cost of capital and anticipate starting in the double-digits. The company has just under $200 million outstanding in the program and believes there is room for growth. They have reduced their credit loss outlook and believe it will return to pre-pandemic levels. The company is not yet incorporating this into their guidance for next year. They are also evaluating operator opportunities in addition to real estate for their structured investment opportunities.

In this paragraph, Ross Cooper discusses the core program of Kimco, which focuses on operating real estate in strong markets with high-quality tenants and a right of first offer. He also mentions the Plus business, which deals with retailers who have a significant amount of owned real estate. The next question is about the impact of interest rates on the company's balance sheet and potential tenant fallout. Conor Flynn responds by saying that the company has a strong credit position and is comfortable with the current credit loss reserve, despite the challenges of higher interest rates and potential retailer debt refinancing.

The company is being proactive in showcasing potential spaces that may become available in the future to attract top tenants. Due to the lack of supply, retailers are interested in partnering with the company to fill their promised pipelines of new store openings. The rise in the cost of capital for tenants may eventually affect their expansion plans, but for now, retailers are still looking to grab market share. The company's mixed-use developments saw an increase in yields, which they attribute to their active pipeline.

The speaker discusses four projects, three of which are ground leases and the fourth being a preferred equity structure. The company is showing the real returns related to the Kimco invested capital and preferred returns for these projects. The speaker notes that due to the current market conditions, there is a higher demand for second-generation spaces rather than ground-up development. The next question asks about the assumptions for debt refinancing in the RPT merger and updates on the Rite Aid exposure.

Conor Flynn and Dave Jamieson discuss the debt to be refinanced for RPT, which amounts to around $900 million. They have various options for funding it, including their Albertsons investment, cash on hand, and access to capital markets. They also mention that three of their leases with Rite Aid have been rejected, but they are confident in their ability to backfill those spaces quickly. In response to a question about macro uncertainty, they mention that they have not seen a change in tenant urgency to sign leases.

In the third quarter, there was no significant change in the time it takes to execute leases due to the macro environment. People are looking to sign leases quickly to open sooner and generate growth. In the fourth quarter, there may be a slight decrease in FFO due to one-time events, but overall the company is performing well and meeting its guidance range. The landlord worked first square foot increased to $8 in the quarter.

In paragraph 27, Dave Jamieson confirms that the increase in new leases is due to three deals that were highly profitable. Without these deals, the total work for TI and landlord work would be lower. The overall cost is in line with previous quarters. The conference call has now concluded.

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