News & Trends

REITWeek 2012: Industry sentiment and trends

Posted by: Dave Bujnicki Dave Bujnicki
on June 28, 2012

REITWeek is a major bi-annual event sponsored by NAREIT, and is a key opportunity for Kimco to meet with institutional investors and research analysts. This year, we had 19 meetings in which we came away with several important observations and understandings on the state of the retail and investment markets.

In addition, Kimco participated in REITWeek’s webcast presentations. Our executive management team discussed a general overview of the company and answered attendees’ questions during the Q-and-A session.

We wanted to blog about both aspects of the show to share with you our latest analysis of the industry, as well as update you on the answers to some of the biggest questions investors have been asking us lately.

Retail industry perspectives

First off, from an industry perspective, REITWeek 2012 illustrated that the positive market sentiment we saw at this year’s ICSC RECon is continuing to grow. This year’s event drew a record number of attendees with over 2,200, reflecting the interest in REIT investments. Steven A. Wechsler, President and CEO of NAREIT, said that many retailers have an optimistic outlook on the present and future of the retail industry, despite Europe’s financial turmoil.

Much of that optimism is due to industry-wide improvements in operating fundamentals and positive leasing spreads. In addition, there’s been a lack of new development, yet many national retailers and franchisors have an increased need to expand and open new stores. This is shrinking inventory, increasing competition for retail space in core markets, and boosting occupancy rates, leading to a positive shift in retail real estate supply and demand.

We also found that concerns surrounding the impact of e-commerce on retail real estate have moderated. Rather than trying to fight online retail, brick-and-mortar businesses are realizing how they can use e-commerce as a complementary piece of their business strategy.

This was one of Kimco’s 2012 industry predictions, and it appears it is coming to fruition as many retailers are now embracing omni-channel distribution networks to increase customer engagement, improve customer loyalty, fulfill customers’ shopping preferences, promote their brand, and drive sales. For example, Macy’s is a major retailer with a robust omni-channel distribution strategy in place.

Finally, we talked about how we’re seeing some conventional grocer locations continue to face increasing competition by alternative food sellers, including warehouse clubs (i.e., Costco, Sam’s Club); specialty grocers (i.e., Trader Joe’s); dollar retailers (i.e., Dollar Tree); and big boxes, such as Walmart and Target.

Kimco investment update

We fielded a lot of great questions about Kimco, its shopping center business, and operating metrics during our webcast Q-and-A session at REITWeek 2012. You can tune into Kimco’s REITWeek management presentation archive for the full details. I’ll also sum up some of the most important questions here for the abridged version.

First, we received a question on how Kimco is filling its small shop space, which is 83 percent occupied. We discussed the incubator programs we’re running, including Kimco KEYS and FastTrack Franchise, which you can read more about on our blog. Kimco KEYS and FastTrack Franchise are both oriented at helping entrepreneurs kick start their own business, speeding and easing their entry into the market.

In addition, we also talked about our efforts to continually improve the aesthetic appeal of our shopping centers to help fill small shop space. This includes making sure parking lots are clean, all lighting is fully functioning, and the landscaping is kept well-groomed.

Another question came up about how we are protecting ourselves in a fragile economy. The answer to this question is largely summarized in our blog post about Kimco’s first quarter 2012 earnings. As you can read about in that post, Kimco is continuing to reposition its portfolio by selling non-strategic and non-retail assets, and recycling the capital back into better-quality centers in our 30 core markets. We’re also continuing to reduce our leverage levels, strengthen our balance sheet, and maintain our investment-grade credit rating.

In addition, Kimco is continuing to take advantage of the capital markets, and issued $400 million of 6 percent perpetual preferred stock in March. Kimco also closed a $400 million unsecured term loan in April. The monies from this loan will be used for general corporate purposes and repayment of upcoming debt. We’re also continuing to look at better ways of refinancing some of the mortgages on our joint venture properties as they mature.

Investors also asked about Kimco’s acquisition strategy. As I noted, most of our new acquisitions are focused in our 30 core markets in the U.S. We are also working to increase our presence in Canada. Additionally, people were interested in our progress of bringing our Mexican portfolio to 90 percent occupancy by the end of the year. As of the end of the first quarter, occupancy for the Mexican portfolio had improved to 85 percent, and we are still comfortable with our 90 percent target for year-end.

We predict the upbeat mood seen at REITWeek 2012 will persist in the coming quarter, with industry operating fundamentals continuing to move in the right direction and occupancy rates increasing. What is your assessment of the REIT industry, and where do you see it heading for the remainder of 2012?

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