Kimco Realty Corporation (KIM) Earnings Call Transcript & Summary

Thanks, everyone. I'm Wes Golladay from Baird. This is the Kimco Realty presentation, ticker is KIM. I am joined by Conor Flynn, the CEO; Ross Cooper, the CIO; and Glenn Cohen, the CFO. I'm going to turn it over to Conor to begin, and then I'll ask a series of questions, and then I'll open it up to the audience.

Good morning, and thank you for being here. Kimco entered 2025 with strong momentum, building on the consistency and resilience that define our platform. In the first quarter, we grew FFO per diluted share by nearly 13% to $0.44, delivering 3.9% same-property NOI growth and captured an industry-leading new lease cash spreads of just under 49% on 4.4 million square feet of leasing activity. Occupancy remains healthy at 95.8% with small shop occupancy continuing its steady climb up 20 basis points year-over-year. We also achieved a long-term strategic goal, generating 85% of our annual base rent from grocery-anchored shopping centers. That milestone reflects our commitment to essential needs-based retail and the staying power of our portfolio. Importantly, our signed but not open pipeline now totals approximately $60 million, a 290 basis point spread between leased and economic occupancy, giving us strong visibility into future growth. The strength of our first quarter performance and the confidence we have in our forward cash flow led us to raise our full year outlook for both same-site NOI and FFO. We were the only company in our sector to do so. Let's talk about the demand behind both of those results. At ICSC last week, our team conducted several hundred meetings and the message from retailers was clear. Open-air remains a top priority. Activity was in line with last year, and we continue to see robust demand across categories like grocery, quick service restaurant, health and wellness and service-based retail. Leasing velocity remains high, with new supply still at historic lows, the environment for rent growth remains strong. Retailers are adapting thoughtfully to macro pressures, not pulling back. What stood out this year is how our national platform helps tenants scale with speed and simplicity. In the first quarter alone, we executed several multi-site package deals that allowed tenants to grow across multiple markets with a single conversation. These opportunities highlight the exceptional and executional advantage that comes with Kimco's size, relationships and integrated operating platform. On the capital front, our balance sheet remains a core strength. We ended the quarter with $2 billion of liquidity and repurchased 3 million shares at an average price of $19.61. Fitch continues to rate us as an A- and Moody's affirmed our Baa1 rating while upgrading our outlook to positive, another endorsement of our disciplined approach. We remain highly selective on acquisitions. Our only purchase so far this year, the markets at Town Center in Florida, was an off-market grocery-anchored asset with immediate upside, and our structured investment program continues to generate compelling returns with lower capital exposure. Looking ahead, our priorities are straightforward. First, continue driving leasing momentum to monetize the $60 million signed but not open pipeline; second, proactively backfill return space to improve tenancy and grow income; and third, deploy capital where it delivers the strongest long-term value through share repurchases, redevelopment and structure investments with attractive risk-adjusted returns. We are also investing in technology to sharpen our edge, leveraging AI, advanced site analytics and smarter marketing tools to enhance leasing speed and precision. And ultimately, what sets Kimco apart is more than just strong fundamentals. It's the scale of our platform. The depth of our relationships and a consistent ability to create value across markets, across cycles and across the portfolio. To close, we believe the outlook for open-air retail is as strong as it's been in over a decade. Demand is healthy, supply remains constrained, and our team is executing at a high level. Kimco is well positioned to lead this sector forward, delivering consistent performance today while continuing to build long-term value for our shareholders. We appreciate your time and look forward to continuing the conversation in today's breakout sessions.

Let's begin with the discussion of the portfolio. Can you talk about how you position the portfolio from a geographic perspective and also within submarkets and by center type?

Happy to, and Ross, feel free to jump in here as well. When you look at the portfolio composition, we've really thought long and hard about what's the best way to create a wide moat in terms of having new supply, trying to now position our existing portfolio. And so for retail, we've obviously been through a number of cycles and been through a number of situations that cause a lot of supply and demand imbalance. So the first real headwind we faced was the oversupply of retail in the United States. And that led to us really taking a deep dive on the portfolio to look and see where we see barriers to entry. And what I mean by that is really density surrounding the asset that would not allow a competitor or a developer to come in and build across the street or down the road in the same retail corridor to outposition our real estate. And so we really focused on repositioning the portfolio in the first-ring suburbs. We really felt that was the best spot because it delivers convenience and value to the local consumer, but also with the sprawl coming from the central business district, we see continued upside in our parking lots, as well as potential defensive nature of not having the ability to take down a land parcel and develop a grocery-anchored shopping center that would compete with us. And so when you look at the portfolio today, it's really focused on the top 20 major metro markets in that first-ring suburb. And we believe that's where we're ideally insulated from having a significant amount of new supply coming online to outposition us as well as the upside to activate those parking lots for future development opportunities.

Yes. And the only thing that I would add there is that we truly value having geographic diversification. So you asked about different markets. Having that national lens allows us to be insulated from any single event, having a wide moat spread out over different regions. And we've intentionally crafted that through our acquisitions and disposition strategy. So when you think about some of the assets that we've sold over the last 15 years to cultivate this portfolio, it was intentionally designed to get us into those major markets and out of some of the secondary and tertiary markets where we didn't have the same supply and demand in our favor that we do today. And if you just look at some of the transactions that have occurred over the last 5 years and why we feel really good about it, going back to the Weingarten transaction in 2021, that was an opportunity for us to really bulk up in the Sunbelt. When we saw that our existing portfolio was performing stronger in those markets than in other parts of the country, it was still early in the recovery of the pandemic and in some ways, viewed to be a bit contrarian. But we had a high level of conviction to go ahead and do that deal, and it's proven to be very successful for us. Truly thereafter, it felt like every investor in every asset class was really racing towards the Sunbelt, and we took the opportunity to buy a super high-quality portfolio here in Long Island when others were concerned that all New Yorkers were going to move to Florida permanently, which clearly has not happened. So -- and then just taking a step further, we've looked at certain other portfolios like the RPT transaction more recently, where we were able to buy a very high-quality portfolio and pay what we felt to be a wholesale pricing in the mid-8% cap rate, at $165 a square foot because of our geographic diversity and taking on assets in Florida, Boston and other major markets. So it's given us, I think, a differentiation versus some of the competitors.

Yes. Can we actually dive into that. There has been a lot of M&A in this space since -- over the last 5 years, and you kind of highlighted a few that you have done, including one I initiated on coverage the day before and you took it out. So thank you for that. But yes, you do 2 acquisitions. And what did you gain besides the things you highlighted already?

I think the key for Kimco is really focusing on portfolios that are going to enhance the growth profile and enhance the quality. And so when you look, it's not great to be large just from being large sake. It's harder to grow if you're larger and you're not -- you don't -- if you add things that are not enhancing the growth profile. And so for us, we've been very, very focused on looking at efficiencies of scale, and we've always had that mentality at Kimco of how to take costs out of the business, even like our Founder, Milton Cooper, has really sort of ingrained that in everyone at Kimco, and it's the culture of Kimco. And now we're really turning the dial to show advantages of scale. And you see it in some of the larger REITs and some of the other sectors that have really utilized their scale to have a pretty sizable advantage, whether it's procurement, whether it's pricing power, whether it's intelligence and that others don't clearly have. And so when you look at the data we have and the opportunities we have, including, obviously, the onset of degenerative AI and everything that comes with that, I think we're at a point where the advantages of scale are starting to shine, and we see real opportunities for us to continue to not only take cost out of the business, but utilize our analytic tools to help us gain market share in terms of the leasing that's available to us. And so these 2 combinations that we did clearly enhance the portfolio this first quarter was really, I think, a remarkable one for the RPT transaction because it's the first quarter where it's over a year now since the transaction. And if you think about the way retail leasing works, that first year of RPT was great. There was a very strong same-site NOI that helped boost Kimco's same-site NOI. But it really takes a full year when you start signing leases as a Kimco portfolio to have it come online. So this first quarter was the first real testament of what Kimco is able to do with that portfolio. And we put up a 9.9% same-site NOI on that portfolio. And so I'm super encouraged about showcasing the strength of the platform because in a lot of ways, it's very hard to win one-off transactions today. There's a lot of capital formation for shopping centers today. If you think about it on the private side, Blackstone buying ROIC, you've got Bain, you've got Cohen & Steers. You've got numbers of these funds out there as well as the public side bidding for these great assets. It's very competitive. And when we look at our value-add strategy, we really think buying portfolios, layering them into the platform, not having to add any incremental G&A and then using our leasing expertise to really drive results is a clear distinct advantage at Kimco. And we want to keep putting the numbers up to showcase that.

Yes. I would just add that on both the Weingarten transaction and the RPT transactions, in both cases, the transactions were both immediately accretive and deleveraging at the same time. So it's really put our balance sheet in a very, very strong position as well as continue to further diversify our tenant base.

Okay. There's been a lot of headline bankruptcies over the last few years, and you did highlight a good commentary from ICSC. Would you say that the landlords still have pricing power?

Yes, the leasing front, in my opinion, is probably the healthiest it's ever been in my career. If you think about 13 years of new -- no new supply, and then the demand diversity that we're experiencing today, you're seeing the pricing power shine and bankruptcies used to be sort of the overhang on retail. This year, we're going to showcase that it's upside because we're able to show the pricing power on the Party City boxes and how quickly we're able to backfill them at 40% lease spreads. And the capital going into these re-tenancy is going down as well if you think about it as a percentage of CapEx. And so the way the bankruptcy process works, and this is an interesting stat, is usually the retailers that are the most aggressive in the bankruptcy auction to buy those bankruptcies are going after the lowest rent. So in essence, the best economic terms that they can then assume and then have to step in and start paying rent. We've seen over 20% of our bankruptcy leases be purchased by other retailers. And yet the spaces we're getting back after that 20%, we're still putting up 40% plus leasing spreads. So take out the lowest average base rent leases, and we're still putting up 40% new lease spreads, and that's a testament to really where the demand is today.

Following up on that, one thing that is unique about Kimco is they have a lot of below-market leases. Can you talk about that opportunity for the portfolio?

Yes. It dovetails to what we were just talking about. If you think about how we've curated the portfolio, it really shines in moments when these bankruptcies occur because you're getting the ability to mark those leases to market if you're able to recapture them. And so the way we've curated the portfolio is to really look from a bottoms-up approach of if you were to get that space back, how much pricing power do you have? How much are you able to really push to help the growth profile of that asset? And so when you look at the Party Cities, when you look at the JOANNs, when you look at the Big Lots, these are multiple filers, what we call Chapter 22 retailers that have been to the bankruptcy court multiple times. We've been pre-leasing and marketing these spaces for a long time. And we know when there's upside embedded in the asset. And so using that asset management screen, we've been able to curate a portfolio that, on average, our anchors are 65% below market. And so when you think about no new development and you think about no new supply coming online, where are retailer is going to fill their new store counts. They're all vying for these finite amount of boxes that are coming back through these auctions and through these recaptures. And that's where we can, again, backfill at not only significant mark-to-market upside, but the tenant credit is so superior, you're getting a credit replacing a defunct tenant. You're getting the ability to backfill sometimes with grocers that are going to drive more traffic, and you can remerchandise the whole center around. And that's what gives us a lot of optimism about the opportunity set ahead.

Yes. So just to add, if you look at like the Big Lots, 5 of the leases that we signed, the spreads on those were over 47%. The Party Cities, there were 21 leases that have already been signed by us. The spreads are in excess of 30%. And the speed at which they're getting done is just -- it's just unprecedented, which is really, really terrific. The other thing that we're having at the advantage of is as we've gotten these boxes back, they're being taken by single-purpose use. So the amount of downtime is shorter, the capital needed because we're not splitting the boxes. So the amount that's coming out and into that snow pipeline is pretty dramatic. So that's up to $60 million and that will all start to flow into 2026 for us.

We're going to switch it over to the capital allocation. There's been no new supply. So that is a potential redevelopment opportunity for the company. How much do you want to spend? What type of returns do you look for? And do you have a self-funding program?

Yes. So the retail redevelopments are a great use of capital for us. They typically average anywhere between 10% to 12% return on cost. And so we continue to mine the portfolio for those opportunities. And those can vary in terms of size and scale. An easy way to think about it is if you see a parking lot and then all of a sudden, you see a Chick-fil-A going up in the parking lot. That really is, in our opinion, retail redevelopment because our definition is changing the square footage. There's a lot of different definitions out there. But if you have to go through permitting, development construction for a new piece of the property, and that's what we really define as redevelopment. And there's a lot of opportunities to expand and to add consistent density to the asset, mainly because the parking ratio requirements are coming down. And so that's one of the big upsides that I see for our product in the future is when you think about how -- like robotaxis are already here and how they're continuing to gain share and expand across different municipalities, that, in my opinion, is going to be a further reduction of parking ratios because if you don't drive your own car and have to park it, that 4 per 1,000, which is really sort of the ratio that's been consistent in retail for forever, really has to come down, and you can see that the parking lots are so untapped potential. And that's where we can continue to add additional retailers or in some cases, we've entitled for multifamily towers as well. So we're up to 12,000 apartment units entitled. We think that the combination of apartments with retail is a very harmonious situation. Every 3,000-apartment unit that we've built is pricing at a premium to market because if you think about it, the retail amenity that the shopping center provides is unmatched. What apartment building has in the base of it 50-plus retail options. That includes a pharmacy, a grocery store, a coffee shop, a fitness facility, an urgent care facility. So that's why we're super encouraged about the future upside of the portfolio because we're layering in all of these value-add components for the future.

And the other nice part about that, you asked about the funding is we are able to generate these very accretive returns utilizing capital that is much lower cost to us. So we have a close to $145 million of free cash flow that we can utilize for these redevelopments. We've also activated a strategy that we've talked about with utilizing some of our long-term ground leases as well as some of those entitlements that Conor mentioned in nonincome-producing assets within the portfolio that we can monetize. So looking at our portfolio, we have upwards of 9% from an ABR standpoint, in terms of long-term ground leases that have strong credits but are generating less than 1% CAGR. So really is an anchor on the growth profile for the portfolio and the company. So we have undertaken a strategy to start to monetize some of those long-term leases, sell them at very low aggressive cap rates and then redeploy that capital into a combination of acquisitions, our structure and investment program as well as some of the redevelopments that we've been talking about.

Looking at the acquisitions, you mentioned that more institutional investors want to be in the asset class. How are you fitting off this competition? I think you have been going a little bit larger in size. Maybe walk through one of your recent deals.

Yes. It's extremely competitive out there. As Conor mentioned, it's difficult to win some of the one-off bidding wars. So I mentioned a couple of the transactions. And really, our job and our focus is how do we differentiate our team and our capital and our platform. So we've been successful in 2 of the M&A transactions that I mentioned. We were successful in acquiring that portfolio in Long Island when others were not necessarily looking into that market. And more recently, we focused on a handful of larger format grocery-anchored hybrid assets where there was a lifestyle component, some other junior boxes. And due to the size of the deal, all 3 of those were north of $100 million that we've acquired over the last 3 years. More recently, there's been a bit of a discount from a seller standpoint for larger assets, that is unfortunately dissipated more recently, but we were able to acquire the Stonebridge asset outside of D.C. as well as 2 assets in Florida, Waterford Town Center and the markets at Town Center in Jacksonville, for north of 7 caps going in, which has been a really accretive transaction for us. But if we're not able to compete on buying neighborhood grocery-anchored shopping centers that today are trading at between 5 and 6 cap rates going in, we can have the opportunity to utilize our structured investment program, where we've been putting out capital in preferred equity and mezz financing on high-quality real estate, where we get our foot in the door with the rider-first offer or rider first refusal, and we generate a very attractive return in the interim. And then ultimately, we may have the opportunity to acquire that. The markets at Town Center was actually an example of that where we had a mezzanine -- mezzanine financing position of $15 million on a grocery-anchored asset in Jacksonville, and we were able to acquire that and convert it into long-term ownership. So we have a few ways to be creative and to get our foot in the door on high-quality real estate when it's extremely competitive in the open market.

You kind of highlighted the opportunistic arm of Kimco. And I think we need to talk about some of your historic investments in retailers, including one Albertsons.

Sure. Albertsons, obviously, was a fantastic investment for us. We did it in multiple phases over a pretty long period of time. It spotted back in 2006 with the first investment of about $50 million, that first investment was then converted into about $250 million on the first pass. We then did a second transaction in 2008. And then we acquired with the whole consortium Safeway in 2013. And then Albertsons, as you know, went public and upon it going public, we monetized all of our shares and for a $140 million investment, we converted that into about $1.4 billion of cash and utilize really all of that cash, which was the intent to really delever the balance sheet. So the balance sheet is in the best shape it's ever been in. We sit today with net debt to EBITDA on a consolidated basis at 5.3x. We are A- by Fitch, BBB+ Baa1 by Moody's and S&P and both on positive outlook. So utilizing that investment was just a tremendous benefit to us. And we're happy that Albertsons is still around and a very, very strong tenant for us.

We have touched upon the multifamily entitlements as you have done. Do you anticipate reloading the program? And what type of valuation do you see for some of these entitlements?

Yes. The entitlement program is set up for long-term value creation. And I think that is why we like the program is because it's not forcing us to do anything that we don't have to do. And we want to make sure that we deliver projects into sort of a pipeline where there's not [indiscernible] in any certain market. The apartment supply right now is being absorbed, so that's been delivered. We think that the out years actually are relatively healthy in terms of supply and demand, which creates opportunity and value for our entitlements. As I said, we've activated and built 3,000. When we look at the 9,000 that's into the future, we really have identified, I think, a program that helps Kimco and our shareholders recognize the value without having too much capital at risk during the development cycle. And so what we'd like to do is contribute the land or the parking lot typically that's entitled and [ shovel-ready ] for apartments as our equity. So in essence, our sweat equity plus the land with a marked-up value for the entitlements into a joint venture with a multifamily expert. And that, in essence, is our capital. And the multifamily developer comes in, puts the construction financing on, develops it, leases it, manages it. And then upon stabilization, we have a ROFR if we want to buy it in-house, or we have the ability to market it and sell it with them. So it creates a nice flywheel where, again, we don't have a lot at stake in terms of capital out the door. That's not returning anything day 1 and puts us in a position, I think, for the long term to create significant FFO growth from a product that obviously demands very low cap rates with some pretty strong internal growth opportunities.

One last one for me. You have made a big push on the ESG front. What are some of the items you're doing?

ESG for us is really sort of the culture of Kimco, to be honest. I know there's all sorts of things that go into ESG. But when you think about sort of the sustainability of the business and what you want to invest in for the long term, we have a large portfolio. We have the ability to really invest for the long term. We've really looked at solar and continuing to expand that in terms of where it can be profitable and bring in more power to the grid and then we can resell it to existing tenants at a discount versus what they're paying for power. We think that's like a nice self-fulfilling opportunity for us where each and every asset and every state is a little different in terms of the regulations, but we feel like that's a real opportunity for us in terms of power. Obviously, we're the countries in need of more power. So we're looking at that as well as other opportunities to see what we can do on the asset base to create more power. There's also a lot to do with like in terms of prop tech and climate tech. And so we're looking at our assets and trying to figure out what's the best use of technology to either lower operating costs or enhance, obviously, the revenue side of it. And so there's a lot of different initiatives we're doing to look across all of those different sectors and see what makes the most sense. If you think about it, we control a lot of parking lots and a lot of rooftops. And so there's real opportunity there, whether it's from towers, whether it's from solar, whether it's from like water control, whether it's from -- you name it, it doesn't really have to be limited in terms of what we can explore. And so our ancillary income program, which is really something that's continuing to compound at double digits growth is really sort of dovetail to that. So we're very focused on the return on investment to see how do we go about using some of these new technologies to drive more leasing and to drive more ancillary income to the center.

Yes, I would just add also, our $2 billion revolver is -- actually has a green component to it as well as term loans that we have outstanding, and they're tied to greenhouse gas reductions of Scope 1 and Scope 2 over a period of time to 2030, which we're on track for so far. So the goal was to reduce greenhouse gas emissions, Scope 1, Scope 2 by 30% from 2018 to 2030, and we're right on target for creating those reductions. And again, it's coming from water management, waste management, solar.

Yes. And then on the governance side, we very much focused on Board refreshment. And that's been a consistent focus of Kimco over the past decade. And so just recently, our Founder, Milton Cooper, stepped to become Chairman Emeritus. Richard Salzman stepped into the non-exec Chair role. Ross Cooper and Nancy Lashine, Independent Director just joined. So that refreshment process continues. We have a tremendous diversity background of the Board and continue to think that that's really best-in-class to continue to have an accordion type feature where you have people bring new skill sets to the Board. And then as people roll off, you can backfill those skill sets with others that might be a void on the Board.

Do we have any questions from the audience?

Yes. I come from the Philadelphia [indiscernible].

The question is for the pipeline on mixed-use development.

So Ardmore, our Suburban Square asset that you're familiar with is going to be an incredible project. We're super excited. We just had a topping off party actually on that multifamily project. So that's one of the first to really come out of the program, utilizing a multifamily partner to help us develop it. So we have a number of other projects behind that. As I said, we've got 9,000 apartment units entitled that have yet to be built. We've built 3,000. So there's more projects, not necessarily in the Philly market where we're looking to activate, but we have a lot of entitlements in Florida, Texas, the D.C. market, Bay Area, Southern California, Denver. So those are the areas that we continue to Phoenix. There's a lot of opportunity across the portfolio. And again, since we're in that first ring suburb of those major metros, we want to be mindful of how much supply has been added over the past few years and really where the highest return on our capital is. And so you'll see us layer in probably a project per year as one delivers another one comes in, so that we can continue to have sort of a pipeline that builds on itself. But that's really the cadence that we're looking for. Suburban Square will deliver in '26 and then really stabilize in '27. And so you'll see another project be activated that probably delivers in '27 and stabilizes in '28. Right now, it probably looks like the next project would be either in Florida, D.C., Texas or the Bay Area, right now, or Denver. They're all sort of -- we're analyzing it right now. It's the best return, the highest return on capital.

One last one. Yes. The question is what retailers were we backfilling the recently bankrupt tenants?

So we have a nice sort of case study of who's been backfilling those Party Cities, Big Lots and JOANNs. It's really a wide spread of retailers, which is nice to show the depth and breadth of demand. When you think about what really dramatically changes a shopping center, adding a grocery anchor is still #1 in terms of our priority to backfill. We did 5 Sprouts leases in the first quarter. They continue to be very, very active, but it's not just Sprouts. We're doing deals with Whole Foods. They're very much on the aggressive campaign again. Aldi and Lidl are more the discount grocers, but they are super aggressive. And they have -- we've done a number of deals with both of them in those boxes. Trader Joe's, we've done a number of deals with as well. Grocery in general, is very strong and continues to expand. Off-price continues to be a big component of our business. T.J. Maxx, Marshalls, HomeGoods, HomeSense, Sierra Trading Post. They're all doing new deals, and they all are struggling to try and fill that new store opening plan. Burlington very aggressive in the bankruptcy auction. You'll see them buy more and you'll see them continue to expand the portfolio. Ross as well, doing about 100 deals a year. So those 2 components, I would say, are the most aggressive. And then you've got sort of a combination of sporting goods with DICK'S Sporting Goods, Golf Galaxy and their House of Sport concepts. You've got a number of fitness facilities, whether it's LA Fitness. We're looking at doing some Life Time Fitness deals. Crunch, Planet Fitness, all doing deals in that square footage type. You've got a number of other uses where you look across sort of the spectrum of whether it's furniture, you've got a number of other concepts that are growing right now. So it's pretty exciting to be in a point where you have pricing power, but you also -- you don't have a concentration of demand. I think for a long period in my career, it was very concentrated in terms of the demand. And for the first time, I think we can point to -- you name it from a category perspective, whether it's health and wellness, beauty, medical, it's really home improvement, grocery. Barnes & Noble is doing a number of new deals and growing. It's really exciting to sort of point to the depth and breadth that we have today.

Thanks, everyone, for joining.