Kimco Realty may not be a household name in New Hyde Park where its corporate headquarters is located, but among retailers across the western hemisphere the real estate investment trust is a high-profile power house.
The company owns and operates 926 shopping centers comprising 136 million square feet of leasable space across 44 states, Puerto Rico, Canada, Mexico, and South America
And as of June 30, the company had market capitalization of $7.9 billion.
Kimco is also one of New Hyde Park’s largest employers, with a staff of 240 people working in its headquarters at 3333 New Hyde Park Road, a stone’s throw from Lake Success.
Despite the current economic downturn, the company currently maintains an occupancy rate above 90 percent in all of those shopping centers, according to Michael Pappagallo, Kimco chief operating officer.
“Even in the worst part of the recession, our occupancy was never below 90 percent,” Pappagallo said. “We’re generally on the higher end of the occupancy spectrum.”
Kimco, a publicly traded company which moved to New Hyde Park in 1996, has built its business over the past 50 years with a significant concentration in the northeast, including ownership of 40 shopping centers on Long Island.
Those locations include a center achored by King Kullen on Northern Boulevard in Manhassset, the Little Neck Shopping Center on Little Neck Parkway in Queens and a center on Jericho Turnpike in Mineola anchored by North Shore Farms, as well as other locations in Smithtown, Plainview, Syosset, Jericho, Farmingdale, Bridgehampton and Centerreach.
“Long Island is always going to be a strong market,” said Joshua Weinkranz, vice president of the northeast region for Kimco. “Although it seems like we have a lot of retail, we also have a lot of people.”
One of those people is Milton Cooper, a co-founder of Kimco who serves as executive chairman of the Kimco board of directors. It was Cooper who was instrumental in moving the company to New Hyde Park.
The company’s basic formula for success has focused on developing shopping center with anchor tenants that generate frequent return business.
“Almost everything we own really can be defined as a neighborhood strip center or power center. Our business was built from the ground up on more the neighborhood central goods, repeat visits convenience store shopping,” Pappagallo said. “That’s always the niche Kimco has played in for the 50 years we’ve been in business.”
Pappagallo said Kimco’s portfolio demonstrated its resilience through the recession because its shopping centers are typically anchored by supermarkets or big discount centers such as Super Wal-Mart, Home Depot and Costco. With a bias toward retail outlets that draw repeat visits, he said, there tends to be less fluctuation in the business such stores and the shopping centers around them generate.
Funds from operations for its second fiscal quarter were $48.3 million compared to $23.9 million for the same period one year ago. For the six months ended June 30, net income was $86.33 million compared to $37.9 million for the comparable period in the prior year.
During the second quarter, Kimco acquired what it described as five “high-quality” shopping centers comprising 435,000 square feet for approximately $97.3 million. It acquired the remaining 70 percent interest in a 680,000 square foot grocery-anchored “power center” in upscale Towson, Md. for $127 million. The center included a Wal-Mart, Target, TJ Maxx, Marshalls and Babies R US/Toys R Us.
Kimco also acquired a 90 percent interest in a 140,000-foot grocery-anchored shopping center in Edmonton, Alberta.
At the same time, it sold 10 properties for approximately $77.6 million and was in contract negotiations to sell 12 other properties worth approximately $120 million.
“In the past couple of years, we’ve tried to sharpen the saw a little bit,” Pappagallo said, acquiring properties in larger markets and jettisoning properties in secondary markets.
Kimco’s general approach to increasing cash flow and profits is to sell non-growth properties, seek more lucrative properties in new markets and improve existing centers by improving them with solid anchor tenants such as banks or restaurants.
“If we can squeeze more growth out of stronger centers that we have, make some acquisitions and get rid of the weaker centers that have that element of risk in it, then you’re going to able to deliver good steady earnings growth and good steady dividend growth over a period of years,” Pappagallo said.
He said Kimco has traded out more properties in raw numbers over the last few of years than the company had traditionally done. While its traded off 63 properties in that time, Pappagallo said those properties were relatively small ones that represented less than 10 percent of the value of Kimco’s total holdings.
The company’s most recent acquisition earlier this month was Wilton Campus Shops, a 97,000 grocery-anchored retail center in Wilton, Conn. for $39.7 million, including $20.9 million in mortgage debt.
Pappagallo said Kimco doesn’t exclusively target upscale areas like Fairfield County, but rather seeks to strike a balance between shopping centers in high-income areas, which tend to be lower in population density, and centers in lower income areas with typically high population density.
Weinkranz said the company’s six current assets on Staten Island have been “a great market” for the company.
“We find a lot of retailers over the years have wanted to locate on Staten Island,” Weinkranz said.
In one case on Staten Island, Pappagallo said, Target was willing to pay a premium to replace a long-standing Wal-Mart as part of a broader makeover Kimco was seeking to make in that shopping center.
Another “game-changer,” he said, was switching out a Waldbaum’s for a Best Yet Market in Huntington.
These days, Weinkranz said in the northeast and elsewhere the company has seen a rising appeal among consumers for specialty grocers, urgent walk-in medical care centers and wellness businesses such as health clubs and massage treatment centers such as Massage Envy.
“I think people are becoming more health conscious these days and It’s certainly been a category that has seen expansive growth,” Weinkranz said.
People who have memberships at gyms typically visit the shopping centers where they’re located several times weekly. That trend has offset the failure of formerly strong draws such as Borders, he said.
“The strong are getting stronger. Nobody’s building anymore,” said Pappagallo, who said chain stores have clearing demonstrated staying power over independent stores during the recession.
Pappagallo sees growing strength in service-oriented businesses offering “things you can’t get on the Internet.”
Virtually every one of its West Coast shopping center has a Vietnamese noodle restaurant, he said,.
“If you can capture some of these, coupled with a name retailer, you have a viable shopping center,” he said.
Throughout its operations in 44 states, he said Kimco is starting to see signs of economic recovery.
The northeast remains the company’s core market, with particularly concentrations of properties in the New York metro area. But the Baltimore-Washington, D.C. corridor, the Florida “Gold Coast” and the major West cCoast markets of Los Angeles, San Diego, San Francisco and San Bernardino are also areas of concentration.
Pappagallo predicted the company would continue to do well in bigger markets by continuing to shift gears.
“We will continue to find and replace tenants. Expect to see change as a constant,” he said.
