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COVID-19’s impact on commercial real estate

Conor Flynn, Kimco Realty CEO, joins Yahoo Finance to discuss the impact of COVID-19 on the commercial real-estate sector.

Video Transcript

SEANA SMITH: Kimco Realty, that stock up 32% so far today-- close to up 32% today. News of Pfizer's vaccine program giving Kimco as well some other shopping-mall owners a big boost.

We want to bring in Conor Flynn. He's the CEO of Kimco Realty. Conor, great to have you back on Yahoo Finance Live.

You've weather the pandemic better than, I think, many of your peers had, and a lot of that is because of those grocery-anchored shopping centers that you have. What are you seeing at this point in the pandemic when it comes to traffic data at your stores?

CONOR FLYNN: Yeah, thanks for having me. We have seen our operations stabilize. You know, traffic is up near close to 90 plus percent versus this time last year, and actually some of our sites are even over 100% of what we were experiencing last year, and there's a lot going on into that data. Some of the anchors that we have like you mentioned, grocery stores, but also folks like Target, Best Buy, Costco, Home Depot, they're all starting to utilize their stores as distribution and fulfillment points, and we've accessed-- no, we've optimized those locations by building in curbside-pickup programs in all of our locations.

And so it's an exciting time to see actually how a pandemic has really put a lot of pressure, obviously, on the shopper, but they've been able to pivot. They've been able to evolve and start to utilize the store as a distribution and fulfillment point, and you're starting to see it show up in all the numbers.

ADAM SHAPIRO: Conor, one of the things that stands out about you too is the collection rates among those in your malls. And help me understand because when I went to your website-- there are two different types of malls in my mind, and I'm not in your industry. But there are those traditional huge malls that have like a Macy's and those kinds of anchor stores, and then there are the malls that have like a Target or a Costco in them. Is there a difference, and are you seeing the rent payment different within those types of properties?

CONOR FLYNN: Sure. So an easy way to think about it is enclosed versus open air. So enclosed malls typically have department stores, right? So the traditional department stores are the Sears, the Macy's, the JCPenney's, all the ones that you just referenced.

Luckily for us, we own open-air shopping centers, and they're anchored by traditional either grocery stores or those warehouse stores like a Walmart, Target, Costco, Home Depot, and they have actually been doing quite well through this pandemic. And so there's a difference there in terms of product type.

And the shopping center has evolved to actually be a destination of choice. A lot of these shoppers that are in the midst of this pandemic are utilizing the locations to shop in a way that they feel safe. And there's a number of different ways now that people shop. Most people start with their phone. And you can have it delivered to your home, and that's-- you know, over 90% is being delivered by the store that's in close proximity to you. Or you can buy online, pick up in the store.

That's the magic. That's when the actual economics start to look like a store's economic sale because the margins are higher, and that's where retailers are going to start to offer more discounts and more incentives for you to come and utilize that buy online, pick up in store. And then you can use curbside pickup if you want to do it frictionless.

SEANA SMITH: Conor, in the past five years, you've really transformed Kimco's portfolio. And I believe right now you went from 64% to 77% grocery-anchored shopping malls. What do you think that percentage is going to look like, or what are you aiming that percentage to look like in 5, 10 years down the road?

CONOR FLYNN: So it's a great question, and it's one that we take great pride out of Kimco is-- well, we've focused on that evolution. And the grocery anchor is one that we love because it generates daily traffic and multiple times a week traffic, and we see a halo effect when you add that grocery anchor to a shopping center. We're up to 77%, as you mentioned before.

And one of the big beneficiaries of this pandemic has been the grocery anchors, right? They're seeing extreme volume, huge sales numbers. And they're utilizing that boost in cash to go and actually expand. And so we're seeing the demand off the charts from all of our grocers, from the bigger players like the Krogers, the Walmarts, to the more traditional folks like the Albertsons and, you know, the Whole Foods, the Trader Joe's. They're all looking to expand, and so we've laid out a game plan to take our portfolio to actually over 85% to 90% grocery anchored over the next five years because we see that a lot of our assets that don't have those anchors lend themselves to that repositioning.

ADAM SHAPIRO: What are some of the smaller stores, though, in the makeup, and how are they faring through all of this? I'm thinking actually of a Target-style outdoor shopping plaza. Here in Manhattan there's a mattress store. There's a cell-phone store. Is that same kind of thing with your properties?

CONOR FLYNN: It is. You know, you typically look at your merchandising mix, and you typically try and drive traffic at all points during the day. And so when you have a traditional shopping center that has a grocery anchor or a Target anchor, you tend to have a Starbucks or a coffee shop that drives traffic in the morning, maybe a great bagel guy that people love. And then you start to mix it through there with services, a lot of hair salons, nail salons. Medical is a big component. Services has been-- have been huge as well.

You're starting to see some interesting uses come-- start to expand as well. There was coding schools that were interesting to see pop up, and now they're doing remote learning as well. But coding has been an interesting use that's really started to expand. A lot of quick-service restaurants which are, you know, obviously pivoting in COVID and looking for drive-throughs and delivery models, which you've seen some do actually very well in this. So that's typically the makeup. And then you have off-price retailers like TJ Maxx and Ross and Burlington, which have actually positioned themselves nicely as well.

SEANA SMITH: Conor, what does your pipeline look like for new leases?

CONOR FLYNN: So the leasing volume has actually picked up dramatically over the past few months. It's interesting to see that the volume is actually getting very, very close to prepandemic levels. You're starting-- you're starting to see-- you're starting to see demand from anchors as well as small shops. Primarily the grocers are leading the charge, but then you've got a lot of small-shop uses as well, as I mentioned, some of those categories that are starting to expand.

ADAM SHAPIRO: Do you expect it to sustain after we get past the pandemic and the vaccine? Even the next round of stimulus seems as if it would give some of the more traditional kinds of properties an advantage too. That would be a disadvantage for you.

CONOR FLYNN: So it's a really good question. You know, we came into this year at 52-week highs in our stock price. Our occupancy was at all-time highs. We thought we had really figured out what was working in retail and positioned ourselves for growth for the future with our balance sheet in tremendous shape. You know, we're BBB plus, Baa1 credit rated, same as Starbucks. We were positioned hopefully for a credit upgrade going to an A minus, A3.

You know, the future I still think is very bright for our product type. You've got to look at what's been working in the pandemic, and the retailers have done a phenomenal job. They've done-- if you think about how they are the front-line workers. They're the ones that are delivering the goods and services that we so desperately need, and the store base has been the one that's really been delivering it.

And so when you look in the future, you've got to see where the demand is coming from. And we've positioned our portfolio to be in high barrier to entry markets, which is very, very difficult to develop in. So with the lack of supply and hopefully that increase in demand, we should be in a position of strength going forward.

SEANA SMITH: All right, Conor Flynn, great to have you back on the show, CEO of Kimco. We really appreciate you taking the time.

CONOR FLYNN: Pleasure.