Conor Flynn, CEO, Kimco Realty Corporation
The Wall Street Transcript interviewed Kimco Realty Corporation (NYSE:KIM) CEO Conor Flynn last month for its annual Real Estate and REIT report.
In the same report, Kimco was selected as a top pick in the real estate sector by both Mizuho analyst Haendel Emmanuel St. Juste and Compass Point analyst Floris van Dijkum.
Mr. Flynn was named Chief Executive Officer of Kimco Realty Corporation and appointed to the company’s board of directors in January 2016. He joined Kimco in 2003 as an asset manager and has held a variety of senior leadership roles within the company, including that of President, Chief Operating Officer, Chief Investment Officer and President, Western Region.
Mr. Flynn holds a bachelor of arts degree in economics from Yale University and a master’s degree in Real Estate Development from Columbia University.
He began the interview with an introduction to the company.
“Kimco’s strategy is formulated around our focus on grocery-anchored and mixed-use assets. Our primary portfolio is focused on the first-ring suburbs of major metropolitan markets, where we provide essential goods and services through our grocery-anchored assets.
Typically our asset is anchored by the dominant grocer, whether it be a traditional like an Albertsons or a Kroger or a Stop and Shop or an Ahold Delhaize, or a specialty grocer like a Whole Foods, Trader Joe’s, or a strong regional player like a Publix or an H-E-B, depending on where you are in the country.
We try to focus on driving everyday goods and services, and then having a merchandising mix that also drives traffic at different points of the day. So, think about your coffee and your bagel shop in the morning, think about your quick service restaurants or fast food for lunch, as well as the grocery store, obviously, driving multiple trips a week.
And then we also mix in what some people refer to as ‘treasure hunter’ concepts like T.J. Maxx, Marshall’s, HomeGoods, HomeSense, Sierra Trading Post, Burlington, Ross. Those are called treasure hunters because the merchandise moves fast and it’s discounted and you’ll see one item and it won’t be there the next time.
So we have a mix of goods and services that keep people coming back time and time again, and it’s not aspirational spending, it’s local. That’s something that we focus on, that we deliver essential goods and services where people are fulfilling their needs, not their wants, and that is something that I think has stood the test of time, whether in good markets or bad markets.”
Mr. Flynn went on to discuss the strategy behind the company’s recent focus on building apartments.
“Our real estate is typically anchored by a grocery store with a big field of parking, and that’s where we’ve used our platform to unlock the highest and best use of our real estate. A lot of that parking area has become upside in terms of value creation for us, because we look at what we can do in the future with that land.
And really, that’s where we’ve started to entitle apartments and multifamily units across the portfolio, where we see a lot of density surrounding our asset. So many times we refer to what we own as the hole in the donut — everything has gone vertical around us, and we’re sitting with a single-story building with a big field of parking. That’s what allows us to look at the future and say, wow, there’s a lot of unlocked potential in our portfolio.
We’ve set a goal to get to 12,000 apartment units, either built or entitled, by 2025. We just crested 10,000, so we’re well on our way, and continuing to look at how to unlock the value that’s in a lot of these wonderful assets we own.”
He notes that the competitive landscape favors retail landlords right now.
“From the fundamental side of it, I would say our supply and demand balance is very strong right now for our sector. Commercial real estate as a whole is going through a pretty seismic cycle versus other sectors.
But for retail, you’re seeing it hit historic lows in terms of vacancy rates and new development supply. And because of very limited new supply, the pricing power that we have on the retail side is a testament, I think, to where retail has come from and where it’s evolved to.
Whether it’s the onset of e-commerce and what that was going to do to brick-and-mortar retail, or the pandemic and having government shutdowns. Through all of that, you’ve come to a point now where vacancies are at all-time lows, you’ve got pricing power on the landlord side, virtually no new development — so supply and demand is very strongly in favor of high-quality real estate owners.
We’re seeing that in our operational metrics, as our occupancy is hitting all-time highs and our leasing spreads on backfilling Bed Bath & Beyond boxes were north of 40% rent spreads versus what they were paying previously. You’re seeing a lot of green shoots of continuing power in terms of the retail landscape.
That being said, it is very challenging to find buying opportunities in this market because there’s a bit of a bid/ask spread between buyer and seller. What we’ve found is we’ve been successful over the past few years doing larger public portfolios, because, in essence, we’re able to buy at a discount due to a limited buyer pool.
That allows us to use our stock as currency by applying an exchange ratio. That allows us to price better than what we can find in the open market.”
Mr. Flynn points to Kimco’s SNO pipeline as an indicator of cash growth going forward.
“When you look at what is on the horizon for us going into next year, we have a significant number of leases that have been executed but haven’t yet commenced paying rent as the spaces are being built out. We refer to this as our ‘signed but not open,’ or SNO pipeline. That is a visible indicator of future cash flow growth.
That’s what gets us really excited, because the signed but not open pipeline is significant for Kimco, totaling $57 million at year end, and again, it gives us a view into the near future.
Cash flows are growing. The portfolio is in really strong shape right now from an occupancy standpoint, but the cash flows and the free cash flow after paying dividends is growing.
That’s what gives us the ability to raise our dividend like we just did in the fourth quarter, and gives us confidence going into what could maybe be a soft economic landing. It wasn’t long ago people were anticipating a recession, right? There is still very much a chance that could happen this year.
But when you look at our portfolio, and you look at the balance sheet where we finished at the end of 2023 with the lowest leverage the company’s had, the most liquidity the company’s had, and with the occupancy where it is and going in the future, our signed but not open pipeline really is showcasing the amount of cash flow that’s going to be coming online — it gets us super excited that we have the ingredients for growth for investors to be really interested in the Kimco story.”
Read the complete interview with Kimco Realty Corporation (NYSE:KIM) CEO Conor Flynn exclusively in The Wall Street Transcript.
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