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    KIMCO REALTY (KIM)

    Q4 2023 Earnings Summary

    Reported on Feb 8, 2024 (Before Market Open)
    Pre-Earnings Price$20.17Last close (Feb 7, 2024)
    Post-Earnings Price$20.13Open (Feb 8, 2024)
    Price Change
    $-0.04(-0.20%)

    What went well

    • Kimco Realty is well-positioned for accelerated growth, with embedded growth in its portfolio yet to be unlocked, including a significant pipeline of signed but not open leases expected to contribute approximately $15 million to $20 million in 2024 and further benefits in 2025.
    • The acquisition of RPT Realty presents substantial upside potential, particularly in improving small shop occupancy and capturing significant mark-to-market rent spreads, with expected cost savings synergies ranging from $30 million to $34 million, enhancing Kimco's portfolio and growth prospects.
    • Kimco maintains strong leasing momentum with record-high occupancy levels and is successfully re-leasing spaces at significantly higher rents, demonstrating pricing power and demand, which is expected to drive continued growth and high returns on redevelopments with high single to low double-digit yields.

    What went wrong

    • The company's guidance for 2024 FFO per share growth is approximately 2%, which is below its long-term target of 3–5%. This slower growth is due to headwinds like increased interest expenses and one-time items.
    • The company plans to dispose of select assets at higher cap rates (low to mid-8%), especially in lower-growth markets with potential high capital expenditures. This could reduce future earnings potential and reflects challenges in asset value realization.
    • Despite strong leasing activity and a significant pipeline of signed but not opened leases, only 70% of this incremental rent is expected to commence in 2024, limiting immediate earnings impact and potentially delaying growth into future years.

    Q&A Summary

    1. Long-Term FFO Growth Expectations
      Q: What are your long-term FFO growth expectations with RPT?
      A: Management anticipates a long-term FFO growth rate of 3% to 5%, despite projecting around 2% growth this year due to one-time headwinds.

    2. Timing of S&O Pipeline Income
      Q: When will the S&O pipeline income impact growth?
      A: About 70% of the $57 million S&O pipeline is expected to commence this year, representing $15 million to $20 million, mostly in the back half, with additional benefits in 2025.

    3. Cap Rates on Dispositions and Acquisitions
      Q: Why are your disposition cap rates higher than peers'?
      A: The mid-8% disposition cap rates reflect sales of select Midwest assets with lower growth and higher future CapEx needs, not indicative of overall market cap rates.

    4. Leasing Demand and Lease Spreads
      Q: Will strong leasing demand continue and widen lease spreads?
      A: Robust demand across categories, especially grocery, is expected to continue in 2024 due to low supply, potentially resulting in wider lease spreads as occupancy increases.

    5. Factors Influencing Guidance Upside
      Q: What could drive you to the high end of guidance?
      A: Better-than-expected credit loss (projected at 75 to 100 basis points, or $16 million to $22 million), favorable timing of acquisitions and dispositions, and accelerated lease commencements could lead to higher results.

    6. New Lease Rents and TI Costs
      Q: Are new lease rents peaking, and why were TIs up?
      A: Quarter-over-quarter leasing spreads can be volatile; overall ABR is growing, currently at $20.32. Higher TIs this quarter were due to as-is deal structures; underlying costs remain in line with expectations.

    7. Potential Upside from RPT Acquisition
      Q: What is the upside potential from RPT?
      A: RPT's small shop occupancy is about 30 basis points below Kimco's, offering upside. RPT's lease economic spread of 570 basis points represents about $12 million in annual base rent to come online.

    8. Bed Bath & Beyond Backfills and CapEx
      Q: What are the TI costs for Bed Bath & Beyond backfills, and why is CapEx increasing?
      A: TI costs for Bed Bath & Beyond backfills average $55 to $60 per foot, consistent with expectations. CapEx is increasing due to a large pipeline of high-return projects, including contributions from RPT.

    9. Credit Loss Expectations
      Q: How do struggling tenants affect credit loss expectations?
      A: Potential closures from tenants like Rite Aid and Jo-Ann's are being monitored, but leasing activity is strong, with opportunities to upgrade tenancy and achieve double-digit rent increases on backfills.

    10. Rent Bumps and Minimum Rent Growth
      Q: When will higher rent bumps impact minimum rent growth?
      A: Efforts to increase contractual rent bumps are ongoing, with improvements seen in small shop leases. The impact on minimum rent growth is expected as these leases commence and contribute to revenue.

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