Kimco’s Conor Flynn Discusses the Future of the Retail Sector

Since it steers clear of department-store-dependent assets, shopping center REIT Kimco Realty Corp. has largely escaped the turmoil that’s been dragging down discretionary retailers. Yet in many cases, Kimco is being painted with the same broad brush that has stained retail landlords whose properties are anchored by department stores.

The 2017 holiday shopping season could help paint a sharper picture for Kimco and other retail landlords, though. Conor Flynn, CEO of Kimco, is enthused about this holiday shopping season, based on projections of roughly 3.5 percent to 4.5 percent growth in retail sales compared with 2016.

“If we have anything over 4.0 percent growth, I think it’s going to be a banner year for retail for the holidays,” Flynn says.

Kimco, based in New Hyde Park, N.Y., had 507 open-air shopping centers in its portfolio at the end of the third quarter. Those centers, mostly in major U.S. metro markets, encompass about 84 million sq. ft. of leasable space. Flynn says the portfolio’s occupancy rate sits at an all-time high of 97.9 percent.

“We continue to think that the future is bright. We just need to focus on execution,” he notes.

Flynn spoke with NREI to discuss retail’s winners and losers, offer his outlook for the retail industry in 2018 and beyond and map out Kimco’s growth strategy.

The Q&A has been edited for length, style and clarity.
NREI
: As we approach 2018, how are you feeling about prospects for next year?

Conor Flynn: In retail, there are going to be winners or losers, regardless of what year it is. We continue to position our real estate to be in the best position possible to take advantage of dislocation. When you think about 2018, we think that a lot of what happens will be tied to the 2017 holiday season, and if the holiday season is successful, you’re probably going to see less store closures next year than you did this year.

NREI: What do you think when you hear the phrase “retail apocalypse”?

Conor Flynn: It definitely has been used a lot in the media. When you read “store closures” and you see all the headlines, sometimes you fail to look at the other side of the equation, which is store openings. It’s always shocking to a lot of people when you let them know that there’s actually been more store openings this year than store closings. You’ve got to a look a little bit deeper and peel the onion back.

You look at what’s going on in retail, and there are very clear winners and losers. Yet it seems that for a lot of us, if you’re anything touching retail, you’re under a very dark cloud.

NREI: What do you foresee the future being for brick-and-mortar retail?

Conor Flynn: We do think that the future is omni-channel and really being good at every channel. Consumers are so focused today on convenience, price and experience, and so the key is to mix all three. The retailers that are well-capitalized, [understand] the shifts in consumer behavior and are investing back in the stores, those are the ones that are going to be the clear winners.

NREI: When you look at retail real estate, how can companies like yours overcome the growth of online shopping?

Conor Flynn: The key to remember is online shopping is actually a piece of the retail pie. The retailers that are growing online are also the physical brick-and-mortar retailers. Even Amazon, with its acquisition of Whole Foods, is a physical brick-and-mortar retailer. As online [sales] continue to grow, we’ve seen that as a landlord, you’ve just got to be very conscious of your location.

We’ve sold over $6 billion of real estate since 2010 to get the portfolio clustered in the top 22 markets—that’s where we see barriers to entry, that’s where we see supply and demand very much in balance. There’s nothing new really being built today. We’re at a 38-year low in terms of new supply. The retailers that are expanding and really planning to grow store counts in the best markets are having trouble finding those opportunities. All the guys that I talk to on the retail side tell me that there’s plenty of retail space available, but there’s a huge lack of good retail space available.

NREI: Do you see Kimco growing more through acquisitions, ground-up development or redevelopment?

Conor Flynn: The key for us is redevelopment. That’s where we see significant upside growth in the future. We’ve identified close to $1 billion in redevelopment potential in the next three years. But behind that, there’s a big redevelopment pipeline we’re working on entitling to drive future growth. That’s really where we see the best use of our capital. Incremental returns have been averaging between 8 and 13 percent, and you really can’t find better returns today.

NREI: What does your disposition strategy look like going forward?

Conor Flynn: We’ll always be an active asset manager. The last thing I want to do is build up another big pipeline of dispositions.

NREI: How much are you going to be relying on joint ventures in the future?

Conor Flynn: At Kimco, joint ventures used to be a very large piece of the business. We have moved to simplify the business and really skinny down our joint venture bucket. We have three large JV partners remaining, and we continue to look to them to see if they would like to do more with us. We will always have JVs as part of the portfolio because of the existing relationships we have, but it’ll probably be a similar ratio in the future compared to what we have today.

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