Welcome to the 8:35 session at Citi 2023 Global Property CEO Conference. I'm Craig Mailman with Citi Research, and we are pleased to have with us Kimco Realty and CEO Conor Flynn. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can sign in live on liveqna.com and enter code Citi 2023 to submit any questions if you do not wanna raise your hand during the session. Conor, we'll turn it over to you to introduce your company and members of management that are with you today. Provide any opening remarks, then we'll get into Q&A. Appreciate it. Thanks for having us. With me today are Ross Cooper, President, Chief Investment Officer, Glenn Cohen, our CFO, and Dave Buznicki, our Head of Investor Relations and Strategy. We're pleased to be here today. I think I'll probably start just kicking it off with the high level supply and demand dynamic that we're experiencing today in our sector, and then talk about the special ingredients we have at Kimco that we believe will lead to outperformance. From a high level, supply and demand right now is very balanced. We feel like we're in the sweet spot of retail. When you look at the supply, for the last decade, there's been virtually no new supply coming online, which is a nice backdrop to the surge in demand that we've seen recently. Post-pandemic continues to be a very strong demand dynamic. I think one of the best indicators that I can point to is the first six stores of Bed Bath & Beyond that we have been notified that we're recapturing. There's six different tenants lined up to take those entire box with a solid spread of 15%-20% from prior rent. When you look at the dynamic today in the shopping center space with virtually no new supply and the demand side continuing to grow, mainly because of some of the main takeaways of the pandemic. That's really the retailer has really understood how to plug the store into their e-commerce platform. The store has changed dramatically today. It's one that I think is no longer an afterthought. If you remember not long ago, it was all about how fast can you grow e-commerce sales? What were the comp store sales? Physical brick-and-mortar was almost an afterthought. Now what's really, I think, resonating with the consumer is having the optionality to shop conveniently, to look for value proposition. I think when you look at the grocery-anchored shopping center that Kimco has in the first ring suburb of the major metro markets, it's resonating with the consumer today, and it's enhanced by the Kimco curbside pickup program that takes the e-commerce platform and gives them even more optionality of how to shop. When you look at the portfolio today, we've done a massive transformation. We sit with a tightly concentrated and clustered portfolio in the best markets in the country. We see a lot of pricing power on the landlord side because of that lack of supply and continue to look at the highest and best use of our real estate. I think Kimco is a long-term value creation story that is just getting started. Our entitlement program is one that's continued to ramp up quite dramatically, looking at the highest and best use of our real estate. Just four or five years ago, we didn't have any entitlements, and now we've built over 2,000 apartment units. We have another 1,000 under construction. We have another 5,000 entitled, and we're shooting to get to 12,000 units entitled by the end of 2025. It just showcases if you have the right real estate in the right location, the highest and best use, there's a lot of value to unlock over the long term. With retail in the sweet spot right now of the grocery anchor side, with the combination of that value proposition longer term, we feel like Kimco is again in the great spot from a supply and demand side. Now I'll have Glenn comment a little bit about the balance sheet side because we've done a tremendous job of pushing out debt maturities, having ample amounts of liquidity, and with our Albertsons investment stake that we can again continue to monetize, we feel like we have a unique set of situations to take advantage of any dislocation that may occur this year. Yeah. I mean, the balance sheet's really in terrific shape. I mean, we're sitting today with about $200 million of cash. We just renewed our revolving credit facility with 20 banks. We have a new $2 billion revolver that's, you know, set at a pricing of LIBOR adjusted SOFR + 77.5, with a toggle up and down of 4 basis points, depending on our greenhouse gas emissions achievements that we have. We have no maturities this year at all. We do have two bonds that mature in the early part of 2024, and we're gonna generate cash flow after CapEx, TIs, and leasing commissions of about $150 million this year. In addition to that, our Albertsons investment, which originally had a lockup to the end of May, with an event that occurred last week with one of the investors in Albertsons, the lockup now has expired. That is another opportunity for us to be able to monetize further, and our capital plan would be to raise somewhere between $250 million and $300 million this year. We're pretty uniquely positioned from a liquidity standpoint and a cash standpoint to be able to both use the capital towards our redevelopment program, our structured investment program, as well as to be able to continue some of the further delevering that we've done. We are very well positioned and in a unique position from a cash standpoint. That's a good transition maybe for Ross to talk a little bit about the investment pillars we have. Obviously the organic growth is quite healthy today. With the cash position we have and the Albertsons investment we have, we are looking to amplify that with a lot of external growth as well. Yeah, I think to Glenn's point, the liquidity position puts us in a very privileged, unique situation where we can look for partnership buyouts when we're having conversations with some of our joint venture partners that are looking for liquidity. As Glenn mentioned, our structured investment program, which consists of primarily preferred equity and mezzanine financing in unique situations where there are owners or borrowers that need a capital infusion that we can be helpful, as well as looking at some potential core acquisition opportunities as the bid-ask spread starts to narrow over time if we start to see a little bit of dislocation in the market. It's these unique circumstances and times where oftentimes we're able to do our best transactions, We're excited about the position that we're in. Great. Well, I think you guys covered everything. We can just go home now. Just, you know, our opening question for the conference is what are the top three reasons investors should buy your stock today? If you could just kind of succinctly list those off for us. Sure. Happy to. Kimco is a special place. It starts with our culture, starts with our people. Milton Cooper is our founder. If you don't know Milton, he is still an incredible entrepreneur. The spirit of Kimco, I think, is one of the, I think, unique attributes of our company that continues to burn bright today. It's up and down the organization. It starts with your people, it ends with your people. I think that's really number one for me. I think our discounted valuation has to be probably number two. If you're looking for an opportune time, you know, it seems like this is a time to take advantage. Kimco is well positioned, as we talked about earlier. We have the lowest debt levels we've ever had as a company, the highest cash position we've ever had as a company, the best portfolio we've ever had as a company. I think in some ways, the dislocation may net benefit Kimco more than others because of that positioning, because of the preparedness that we have today. I think the balance sheet is another real testament to Kimco's strength. When you look at the liquidity position and the debt maturity profile of almost 10 years, our access to capital. Typically, people get in trouble when they don't have access to capital or when there's a maturity wall coming. We don't see that any time near for Kimco, and we see that that is a real opportunity to take advantage of. I think when you look at the Albertsons stake that we have, that's unique to Kimco itself. You know, we've had to learn a lot about taxes, and managing a billion dollars of capital gain, which is unique to a REIT. We are monetizing that over a three-year period, and this is year two. We did just receive a special dividend and are actively looking to source unique investment opportunities. Then finally, the entitlements that I mentioned before. I think it's rare to see a transformation of unlocked value right in front of your eyes, and that's what I look at when I see the Kimco portfolio. You know, in essence, our strategy is focused on that first-ring suburb, where the highest and best of the real estate is not necessarily its current form. When you look at a shopping center, when 80% of it is close to just parking that's not generating any revenue, that's what gets me really excited about our future, is we really have a lot of different levers to pull for growth. That's helpful. You know, you touched on in your opening remarks about demand still being good. You know, you guys have a larger portfolio, a large footprint, so a good purview to kind of see things. We had the opportunity to tour Dania yesterday, which is an example of, you know, your mixed-use, but you also have kind of your traditional grocery anchor. Could you just talk a little bit about maybe differences or similarities between the lease-up profile of more traditional center versus some of the more high-profile mixed-use where a lot of retailers wanna be to get that traffic and kind of, you know, try to bridge those for us? Yeah. The grocery-anchored portfolio is really your everyday goods and services, right? You're thinking of, We're in Florida, so let's talk about Publix because they are the belle of the ball. When you have a Publix-anchored shopping center, the trip frequency is quite high. What you try and do is merchandise around that anchor and create stickiness points in the day that you're gonna have a longer tenured shopper at your shopping center. You're trying to increase the dwell time. What you do is you look at really what are the uses that are missing in an area. We do void analysis to look at if there's an issue where there might not be a certain use category that's missing in a trade area, and then look to try and bring in shoppers throughout the day, whether it's your coffee, bagel, donut in the morning, whether it's your quick service restaurant. What's interesting that in Florida, 'cause we've been touring obviously our assets the last few days, is I think there's a higher concentration of health, wellness, and beauty here. I think that is part of some of the demographic shifts that are going on, as well as the demand drivers for retail that we've seen really ramp up post-pandemic is health, wellness, and beauty. I think that is a sticky category that is going to continue to grow. You know, when you look at the quick service restaurants that we have, when you look at the services that we provide, the hair salons, the nail salons, these are things that, even during the pandemic, people were still getting their hair done and getting their nails done and going to quick service restaurants for takeout and things like that. We try and strive on the grocery side to put together a suite of offerings that resonates with the loyal consumer that lives close by. Then on the mixed use side, it is more of a wider draw catchment area. When you look at the radius that they're pulling from, you really have to understand your consumer as best as possible. On the mixed use side, it's a wider draw, but there's also built-in consumers with the apartments that are on site. When we talk about mixed use, we've obviously been very focused on just the apartment side of it. We've only entitled office once, and we sold off the entitlement rights. A little different than others, but we are very focused on the combination of the retail and the apartments because we see them feeding off each other and creating a wonderful flywheel where the retail actually generates higher than market rents on the apartments, and the apartments generate higher than market rents on the retail. A lot of it is amenity driven. If you think about an apartment building, what's the best amenity package they can offer? Maybe they have a pool, maybe they have a fitness center. Do they have a grocery store? Do they have a Starbucks? Do they have a quick service restaurant? Do they have a salad offering? Do they have a physical fitness area? We typically already have that in spades, when we add an apartment tower to our product, we have the best amenity package by far in the trade area. That's what's allowing us to push rents on the apartment side above market. That creates a really nice flywheel for us to merchandise around the mixed use product, where we can bring in unique brands that we may have in certain geographic areas that are not necessarily in other geographic areas, and create a nice portfolio of assets where they can see the quality, they can see what Kimco is doing and get excited about getting in one of those projects early. To go back to your commentary on the resi side, you guys ultimately want to get to about 12,000. You're, I think you said entitlements for about 5,500 so far. How do you mitigate the risk, right, with maybe some an uptick in resi development that's going on now, from your own, you know, ground lease versus actually own the apartments? How you guys think about that decision and, you know, as you broadly think about risk within the portfolio? Yeah, it's a good question. Again, looking at supply and demand is critical. When we look at the opportunity set for Kimco, we try and make sure we do a CapEx light activation of these entitlements, giving us the ability to control it longer term. There's a few different ways we've done it, and we've learned, obviously, over the past four years, that the ground lease is an option for us, where we structure it with a long-term leasehold, where they put in the capital, they develop, they construct, they manage, and we have a long-term lease with that best in class apartment developer. We have a right of first refusal. If they were to sell that leasehold, we would be buying from a fee position. You would think there would be a spread between our position and what the market would generate. That could be creating some nice upside for Kimco long term to consolidate it and bring it back in-house. The other way we've done it is in a joint venture with a best in class multifamily developer, where we get a marked up valuation on the entitled land on our asset and put that into the joint venture as our capital and then have the best in class apartment developer take the project soup to nuts and manage it. Again, we have the right of first refusal to bring it back in-house. The way that I think the benefit of REITs, in some ways, there's also some negatives to REITs in some ways, where the structure of a REIT, you're not really benefiting tremendously from a lot of development where a lot of capital goes out and there's no return on that capital until it's stabilized. Where we're trying to activate projects without having a lot of capital going out with very limited return, but giving us another bite at the apple once the asset is stabilized, I think bodes well for the future. If you have to look out in five years, what% of NAV, NOI, however you want to measure it, will resi be of the company? The way that we've looked at it is it's more of a holistic mixed use approach, where we're up to close to 13% now of mixed use coming from the portfolio. That is obviously heavily weighted towards the retail side of it because of the CapEx light approach we've taken on the apartment side. I think as when we look at the portfolio where we're, you know, potentially getting to 85%-90% grocery anchored and then having, you know, a combination of mixed use involved in the grocery side of it, I think that's the sweet spot for us, because you do see higher growth profile coming out of the apartment side in good times. Obviously, in bad times, it can reset quite rapidly. The retail side of it is a steady eddy for us that continues to produce some nice growth as well. That's the combination that we think, for the long term, is gonna benefit Kimco and its shareholders. On the development side overall, there's obviously been upward pressure of construction costs. Your cost of capital is shading, as are all of your peers. Kinda how are you guys underwriting today incremental starts from a return perspective? How much of a cushion do you need to buffer in and where, you know, where do you ultimately think returns will kinda shake out here longer term? We don't have any active developments right now. We're not really looking to put shovels in the ground right now. When you look at the profile, the portfolio and the smaller redevelopments that we can activate, which in a lot of ways is creating an out parcel in a parking lot that's underutilized or expanding an existing shopping center, those are still returning high single, low double-digit returns, just cash on cash. That is a nice use of our underutilized real estate in this period of time where, as you mentioned, costs are elevated, cost of capital has changed significantly. We are sitting with a lot of cash. We are sitting with, you know, another stake of Albertsons that we plan to monetize this year, so we do need to put that to work. The smaller redevelopments seem to be the best use of the capital right now, as you know, they're blending to around a 10% return. When you look at the residential mixed use activations, that's again more of a CapEx light strategy. When you do a ground lease or structure, you typically have very minimal costs, involved in that. It's more like pad prep. Overall, I think when you look at the investment opportunities we have. Clearly leasing is still number one for us. There's a lot of leasing opportunities. We're still not back to pre-pandemic all-time high occupancies. We've ramped quite rapidly back, and still have a lot of opportunity, I think, on that side. Then it's followed by the redevelopment, the smaller redevelopments and then, you know, the structured finance and as well as some of the unique acquisition opportunities that Ross has been finding. I'm getting a lot of questions about bad debt. Obviously, that's been a topic. It goes with your leasing. We've mentioned, you know, leasing costs as a use of that free cash flow. I guess, you know, I won't ask you all at once all these questions. Just from a, just to let everyone know here, could you kind of run through again what that debt expense expectations are in the 2023 guidance maybe, and split that out between some of the known bankruptcies or likely bankruptcies, versus just that general cushion for maybe some of your shop type tenants? So we built into our guidance 75 basis points to 125 basis points of bad debt expense, which is more of a normalized level. Like, if you go back pre-pandemic, we were always running somewhere between around 75 basis points to 85 basis points of bad debt expense in our guidance. That has been a historic level. Obviously, through the pandemic and into last year, you had these wide swings of, you know, large amounts of credit loss, then reversals of credit loss. We're back to something of a more normalized level. When we started and looked at the year with initial guidance, we were obviously very concerned about, you know, where Bed Bath & Beyond would be. Bed Bath & Beyond is baked into our guidance. So that's one specific. The balance of it is more just the business itself coming back to a more historic level and look of what expectations are towards bad debt expense. That's really where we are today. It's in this, you know, $15 million-$18 million range relative to last year where we had $6 million of income. You have this $0.04 swing in the guidance number. From a CapEx run rate standpoint, I mean, retention's generally been good for everyone. If you get some of these give backs kind of layered in there, how should we think about that headwind to AFFO that could, you know, offset a little bit of this rent growth that you've seen? Yeah, I mean, I would say, look, as it relates to the CapEx component of when we think about AFFO, right? We're expecting to generate around $150 million of the free cash flow again after CapEx, TIs, and leasing commissions. To the extent that the retention levels are better, that will help us lead towards the upper end of our guidance range and obviously improve the, you know, the amount of CapEx that is required to keep those tenants, you know, fill the boxes. I think the nice tidbit of information thus far is that the demand for those boxes is usually one for 1. The CapEx load is quite lower than if you have to split a box and start to do it for multi-tenant. For the first few that we've seen that we have visibility on recapturing, we've seen a dynamic of multiple retailers wanting the box and taking the whole box and being flexible on footprint. I think that's the benefit of the supply and demand dynamic that we're in right now, where retailers understand that there's nothing new coming out of the ground. They have significant store growth plans that they've announced and promised to the street, and they need to fulfill those. In order to fulfill those, they're being more lenient on prototype size. If it's a little bit larger or a little bit smaller, but it's the right location, they're gonna make it work. I think that's what we're benefiting from right now. You've mentioned, you know, on the six Bed Bath, I think that you've gotten notification you're getting back. It's like a 12% mark-to-market, maybe 15%-20% overall. As we think about, though, when you layer in CapEx, should we think about those net effectives being materially different than your typical box you may have to lease up or what have you? Is there any distress in that I'm getting at or deferred maintenance that Bed Bath had in there that would, you know, shift that away from what we would expect the, kind of the flow through to be to earnings? Net effective rent has been a Kimco calling card, I think, for the past... since we started. That's why we have a lower average base rent than some of our peers, is because we make the retailer put more capital in than others. We are very focused on net effective rent and making sure that we, as Milton taught us, not to do credit deals, do real estate deals. If you start to inflate the rent or if you start to put in too much capital, that's typically when you can get in trouble in times of, you know, dislocation. We focus on making sure that the tenant itself has a lot of skin in the game, and it creates, you know, a lower average base rent. The net effective rent is what it's all about, and we focus on that and continue to see strong demand from the retailers that allows us to push the retailer to put more skin in the game and yet still generate those positive leasing spreads. Early discussions with tenants so far, I know we're only two-thirds of the way through the first quarter here, but any indications of a shift in sentiment among your tenants or sales or anything that would make you feel like what you have baked in is not sufficient? I know conservative was probably the most overused word as it came to guidance in the REIT space in the first quarter, but just generally how you guys feel about that cushion you've laid in with the early feedback of where tenants are. Yeah. To your point, it is early. But we've so far, what we've seen is traffic is up year-over-year. We're coming from a very high point last year, which is above pre-pandemic level. The consumer continues to resonate toward our product. We continue to see strong leasing demand. As I mentioned earlier, the supply and demand dynamic continues to benefit the landlord that has the high quality, irreplaceable locations. I think it all depends on the consumer and what happens, you know, in the next six months- 12 months. I think we're in this interesting time period where the lower-end demographic is obviously strained from the inflationary environment. They're doing more grocery shopping than they are doing sort of going out to eat. The higher demographic has yet to be impacted or change habits because the employment market is so rock stars hard. like it's one of those situations where so far so good. The leasing demand is strong. The fallout has been less. The retention rates are still quite high. The Bed Bath & Beyond situation is still a fluid situation. There's a lot of demand for those boxes. We're continuing to monitor all the puts and takes. Again, as you said, it's early, and we have to see how things play out. Your success on pushing through contractual bumps. I know, you know, there's the anchor side and then the shop side. Could you just walk through whether that's changed at all in negotiations, kind of what type of bumps you're getting? Just remind us maybe how the bumps you're getting currently compare to maybe the in-place blended for the whole portfolio. Sure. Traditionally, back, I would say probably 10 years ago, you would be looking for a 2%-3% bump in your small shops. On the anchor side, you'd get about 10%-12% every five years. That was the prototypical lease that you would strive for. We've been successful in pushing that annual increase on the small shop side north of 3%. Typically somewhere between 3% and 4%, sometimes even 5%. On the anchor side, it's been tougher. It's typically still in that 10%-12% range. You know, again, a little bit is supply and demand. A little bit is who has the negotiating power on each and every location, because that determines obviously how much, you know, impact you can push. That's typically what we've seen, and it's been pretty steady. The small shop side is really what's rebounded quite rapidly to allow us to push those annual increases, which again, improves the growth profile of the grocery anchored centers that we have. Just generally, rent spreads have been a tailwind for you guys and your peers here. As you're looking at the landscape today, we've talked about demand being good. You know, Citi's expectation is sort of a mild recession in the back half of 2023 with, I guess, we characterize as a less hard landing scenario today, given what's going on. I mean, what is your kind of expectation of what you guys have dialed in or telling your folks on the ground from, you know, how hard to push rents, what your expectations are on different spaces? Kind of what you think your mark-to-market of the portfolio is today generally, and you know, what the expectation is for your leasing folks to get as close or exceed that as possible? You know, if you look at our occupancy recovery from the pandemic, it's pretty remarkable to see, you know, that I think our all-time high was 96.4%, and we're just below 96% today. When you look at, call it, relatively stabilized in terms of occupancy, we're pretty much there. When you get to that point, you can really push. That's where, you know, I think we're at. We're at a point where we can really push rents, we can really push bumps. We're selective on who we can bring into the shopping center to add to the merchandising mix. If you think about traffic drivers, which is really what it's all about, the anchor definition today is very, very different than it was five, 10, 15 years ago. You know, it used to be you had to have the right grocer or the right big box. Today it could be a Chick-fil-A. You know, it could be one of those situations where there's a lot of different sizes and shapes that drive a lot of traffic. We're fortunate where I think our real estate sets, it's become apparent that consumers really gravitate to where it's convenient and to where they can find value. I think when you look at the proposition that we have at Kimco is the merchandising mix changeover that's occurring. We're taking out the worst credit tenants and replacing them with the best credit tenants at market rents. We're seeing, you know, I think 20%-30% mark-to-market on our, on our anchor boxes, which continue to create some nice tailwinds for the long term. We have a question here, you know, cost of capital. Clearly, equity has moved, debt has moved as well. If you guys had to do a debt deal today, Glenn, where do you think a 10-year bond price is? We'd probably be somewhere around 180 over today, I would think. You'd still be, you know, sub 6%. That's pretty much. The market's been moving around a whole lot. I mean, rates have obviously been moving around, spreads, you know, spreads have widened, spreads have narrowed. Right now, today, I mean, the market's clearly open, which is great. You can clearly access it. You know, we've always tried to be very opportunistic and pick our spots when to go. We'll continue to go down that path and monitor the markets very closely and be opportunistic where we can be. That's helpful. Then, we talked a little bit about rent growth, but I have a question here specifically about occupancy cost ratios, kind of where they've gone. At what point do you see tenants push back? I'll add on too, for some of the shop or other tenants that are doing more in the box today than they've done historically from either buy online, pickup in store or mobile ordering, right? How do you get to the true cost of occupancy that you really think they're at versus what they try to tell you they're at and kind of that negotiation? That is a great question because it's a fluid answer, because today you don't have perfect information. We know that the retailers are benefiting from the e-commerce halo that occurs at the store. Trying to monetize that or get it embedded in the occupancy costs is one of the hardest hurdles we have today. You're seeing it show up as retailers continue to push rents where the occupancy costs is above probably typical normal, but they obviously have a different calculus of what the e-commerce halo is going to bring to that store and the sales projections for that store. That's why you're seeing those outsized new leasing spreads where we can hit four-wall sales. The issue that we're finding is that the e-commerce sales that are now being attributed to that store is typically in that geographic area. You're seeing a lot of correlation when stores open, the e-commerce sales pop in that trade area, and the exact same happens when they close a store. The e-commerce sales fall off a cliff. That's, you know, it's interesting. You're seeing now different strategies come out of retailers where the closures are changing, where they recognize it's not just the four-wall sales anymore. If they're gonna close a store, they typically have another store, whether it's right-sized or whether it's a better location in that same trade area, because they know they can't lose those e-commerce sales. That's the dynamic that's really top of mind. We're doing a lot on data analytics to try and help us understand. You can make a informed decision on how much of a benefit e-commerce brings, depending on the use that's in the box. We're still in the very early stages, but we believe that that's a real net benefit for the long term for our business that'll really help generate some significant growth and market rent power. That is helpful. We're gonna move to some shorter, answer questions here. Before we go to rapid fire, just wanna ask, for 2023, what's your number one ESG kind of goal? We've targeted sustainability as our number one, like the greenhouse gas emissions targets that actually help us on the debt side as well. If we hit our greenhouse gas emissions target, our revolver actually gets cheaper. That's one for us that we can control and focus on and execute on. Number two would be diversity for us. Those would be the top two. Perfect. We'll move to rapid fire. What will same-store NOI growth be for retail, not necessarily Kimco, in 2024? In 2024, 2%-3%. What's the best real estate decision today for you guys? Buy, sell, build, redevelop, or hold? Today, I would say if hold equals leasing, I would say hold, 'cause leasing is definitely the best return that we're seeing today, followed by those smaller redevelopments that I mentioned that are clipping around, you know, high single, low double digits. After that, it would probably be some of the structured finance, you know, the mezzanine or the preferred equity investments, again, that we do with the right of first refusal, so we can get a foot in the door on a potential acquisition there. Probably followed by a mix of, you know, the redevelopments and the core acquisitions. Perfect. Then, will the retail sector have fewer or the same number of public companies a year from now? Probably the same. I think this is a question you've asked for a number of years in a row. I think we had two IPOs and two mergers. Net, net zero. I think that's the default answer. Perfect. six seconds left. Thank you guys so much. It was a pleasure. Thank you very much. Appreciate it.