Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kimco Realty Corp (KIM, Financial) reported strong operating results with a high-quality grocery-anchored and mixed-use portfolio.
- Leasing activity is robust, with 144 new leases signed in Q2 totaling 669,000 square feet and rent spreads at 26.3%.
- Pro rata occupancy increased to 96.2%, with anchor occupancy at 98.1% and small-shop occupancy at 91.7%.
- The company raised its FFO per diluted share guidance to a new range of $1.60 to $1.62, reflecting strong performance.
- Kimco Realty Corp (KIM) has a solid balance sheet and enhanced liquidity, with net debt to EBITDA at 5.5 times.
Negative Points
- The economic environment presents mixed signals, with declining consumer savings and tempered spending.
- Higher interest expenses due to increased debt and higher interest rates impacted financial results.
- The company faces challenges in leasing small-shop spaces, particularly in the former RPT portfolio.
- There is a tougher comp in Q3 due to one-time factors from the previous year, potentially impacting same-site NOI growth.
- The transaction environment remains volatile, with tempered acquisition and disposition activities.
Q & A Highlights
Q: You took the FFO guidance higher to $1.60 to $1.62, supported by higher same-property NOI expectations and other factors. Can you break down the contribution of same-property NOI to the FFO guidance and other driving factors?
A: The primary driver is the operating portfolio, with quicker rent commencements and strong expense control at both the property and G&A levels. Additionally, better-than-expected performance from the RPT portfolio has also contributed to the guidance increase.
Q: The guidance assumes a deceleration in same-property NOI in the back half of the year. What factors will drive this deceleration?
A: We have a tougher comp in the third quarter of last year due to some one-time items. However, we remain comfortable with the revised guidance range, viewing same-site NOI as an annualized number rather than quarter-to-quarter.
Q: Can you elaborate on the ability to close the 400 basis points spread in shop occupancy for the RPT portfolio?
A: We see real upside in the small-shop leasing as anchor spaces come online. Typically, it's easier to lease small shops around an operating anchor. We anticipate continued strength and acceleration in small-shop leasing, focusing on driving occupancy in the RPT portfolio.
Q: How would you describe the interest in strip centers today versus six months ago, and how do you view your own NAV today versus where you're trading?
A: Capital formation for open-air shopping centers continues to accelerate. Institutional investors and private equity are increasingly active in the sector, driven by attractive cap rates and a lack of new supply. This is pushing cap rates down and increasing investment activity.
Q: Can you comment on the types of structured investment opportunities you're seeing and yield expectations?
A: Structured investments vary, including recapitalizations, acquisition financing, and unique opportunities like the RIM in San Antonio. We expect more core acquisitions in the second half of the year, with structured investments being more one-off and unique.
Q: Can you provide more details on the acquisition guidance and the 7.5% blended cap rate?
A: The guidance is a blend of structured investments and core acquisitions. The first half of the year was weighted towards structured investments, but we anticipate more core acquisition activity in the second half.
Q: What is the impact of small-shop occupancy on FFO or NOI margin?
A: For every 100 basis points increase in small-shop occupancy, we see about $8 million in ABR, excluding recovery benefits. This represents significant upside, especially given the current trends and opportunities in the RPT portfolio.
Q: What are the key stats you use to gauge leasing interest and activity, and how are they trending?
A: Retention rates are around 90%, exceeding historic highs. New lease activity, both anchor and small shop, is hitting all-time highs. Ethnic grocers and other retailers are planning well into the future, reflecting strong demand and flexibility in space utilization.
Q: How much have cap rates compressed since the beginning of the year, and what do you expect over the next 12 months?
A: Cap rates for comparable products have remained fairly consistent, but there is optimism for the back half of the year and into 2025. Increased capital on the sidelines and a stable or lowering rate environment should gradually push cap rates down.
Q: Can you discuss the occupancy cost ratio and its impact on rent growth?
A: Occupancy cost ratios vary by sector and retailer. While we continue to see strong rent growth, the value proposition of brick-and-mortar stores as distribution and fulfillment points enhances margins. Retailers are now viewing their trade areas more holistically, considering both physical and e-commerce sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
