Kimco Realty Blog

Jim Cramer invited Kimco to be on his CNBC show, “Mad Money,” last week to talk about Kimco’s solid fourth quarter 2011 earnings results. We also got to talking about what I see as an important trend in the retail market — constrained retail space — and why I believe Kimco is well-positioned to take advantage of this.

You can watch the interview with Jim Cramer here:

There are a few factors at play working to constrain retail supply. First, there has been virtually no new shopping center construction in the past three years, during the depths of the recession, leading to a static supply of retail space.

In addition, the U.S. population is growing by about 3 million people per year and the U.S. economy is showing signs of recovery – both of which equate to more shoppers. Many retailers are planning to expand to take advantage of this growing demand. Jim Cramer mentioned on the show that 72,000 new stores are estimated to open in the next two years.

Growing demand for a limited supply of retail space means that effective rents will rise, especially in the most desirable shopping center locations, the “Class A” properties. Because we have owned some of our 946 properties for several decades, we have many long-term tenants paying below-market rents in prime locations, and in some cases, well below our portfolio average of $11 per square foot. This is advantageous for two reasons:

1. Many of our current tenants recognize that they won’t find a comparable or better retail space for the rent they are currently paying. This stability lowers turnover and keeps our occupancy levels high.

2. If a long-term lease expires or a tenant must vacate early due to financial difficulties, Kimco can bring in a new tenant at market rents. Some of our longer lease tenants might only be paying a few dollars per square foot, so Kimco could quite successfully bring in a new tenant at a higher rent.

We’ve seen this bear out over the past year. As we reported in our earnings last week, occupancy levels in Kimco’s U.S. portfolio rose 50 basis points year over year, and our leasing spreads also increased.

Something else that I think positions Kimco to take advantage of this warming trend in the retail market is the fact that the vast majority of our centers provide groceries and other daily needs items to our shoppers. There will always be a demand for these items, no matter how popular Internet shopping becomes.

We also fill our smaller and mid-sized spaces with service-related tenants, such as hair salons, dry cleaners, and increasingly, health-related concepts, like health spas and frozen yogurt shops. These are personal services that don’t translate well to an online shopping format, and so we think their place in brick-and-mortar stores is secure.

Overall, we’ve received positive feedback from the investment community on our fourth quarter results. Analysts’ reports credit Kimco for making good progress in increasing occupancy rates (especially in the small shop space), strengthening leasing spreads, and increasing NOI.

You can read Kimco’s fourth quarter 2011 earnings conference call transcript for more on our quarterly and year-end results. But you don’t have to wait for the transcript to get the details. You can also find our quarterly earnings reports on our website under the “Investors” tab.