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Kimco Realty acquires Weingarten in $3.87B deal

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Conor Flynn, Kimco Realty CEO, joined Yahoo Finance Live to discuss the company's latest acquirisiton and his outlook for the retail real estate sector.

Video Transcript

SEANA SMITH: Kimco Realty is buying a private wine garden in a $3.9 billion deal. So we want to talk to the CEO, Connor Flynn, CEO of Kimco Realty joining us now. And Connor, congratulations on this deal. I understand that it gives you much more exposure in the Sunbelt region. But explain to us just why this makes sense and why you see this boosting Kimco's business.

CONNOR FLYNN: Thanks very much for having me. It's nice to see you. Kimco is very excited about this opportunity. When you look at the deal that we have with Weingarten, it's immediately accretive. It's deleveraging so our balance sheet is actually enhanced. And it enhances our long-term growth prospects. The Sunbelt, you know, we have assets across the Sunbelt as well. And this just really enhances the quality, as well as the growth profile in those Sunbelt markets.

There's a lot to like about the Sunbelt right now. There's migration. There's demographic shifts going on that really enhances the best markets in the Sunbelt. And we see it on the ground on the leasing side. That's why we're excited about this deal and the timing of it. We're at the early innings of the reopening. And we're experiencing record leasing volumes on our portfolio. And we think that's going to play very well with the combination to be a powerful landlord and growth profile going forward.

ADAM SHAPIRO: Connor, it's good to see you again. At the end of all this, you're going to have something like 560 open-air, grocery-anchored shopping centers. When I saw the deal and then heard you were coming on, my first thought was we knew him before he was a billionaire. Not sure if you already are, but. What I'm not understanding is why you're being punished today-- and not terribly. The stock is still near its 52-week high. But it's off a little bit today. But that expansion into the Sunbelt where I grew up, Florida, I mean, you get a Publix anchor to a strip mall-- which is what all of Florida is-- you're off to the races. What do you think investors today are not seeing about this deal?

CONNOR FLYNN: I'm also-- I was born in Fort Lauderdale, so I'm a big Publix fan as well. We own a lot of Publix grocery-anchored centers in Florida. They're about as good as it gets. Yesterday, when we announced the deal, actually, typically a deal like this that's structured with equity, typically the acquirer does trade off. Actually, we traded off yesterday. So every day is a bit different. You never know. But I think investors are getting their arms around the deal.

Clearly, it was well received yesterday when we announced it. And I think there's a lot of opportunities, both near term and long term. We feel like the engine of Kimco is just getting started. We have a lot of leasing to do. But we're experiencing a lot of record demand on the ground. When you look at the demand drivers, that's what's really exciting, is how diversified it is. It's not just one category that's coming back. And really, when you look at the restaurants that are out there expanding, there's a lot of market share up for grabs. And they're really being aggressive, getting-- trying to get to the right locations. And luckily the combination of these two great companies provides a lot of upside for both shareholder bases.

SEANA SMITH: Connor, you mentioned leasing is certainly trending in the right direction. I know we started to see that at the end of 2020. What about the occupancy levels? When do you expect to reach the levels that you saw pre-pandemic?

CONNOR FLYNN: You're spot on. The rebound in leasing will drive those occupancy levels higher. We anticipate that the demand drivers are going to outweigh the supply that we got back through the pandemic from the vacancies that occurred during that time. It's really just now starting to get going. So if you look out the next few quarters, you're really going to see that inflection point on the occupancy side. And you have to remember we came into the pandemic at all-time high occupancies.

And so, the way I like to think about it is some of the weakest credit or the worst operators were the ones that were removed from the rent rolls during the pandemic. And now we have the opportunity to backfill those spaces with the best in class omnichannel retailers. Because really, what the biggest lesson learned through the pandemic is that the last mile store that we have with our locations is being used as a hybrid. It's being used as these fulfillment epicenters.

And you look at what Target has laid out in terms of the blueprint for the future. And that's why we get so excited and have such conviction on our product, is because that last mile store-- it doesn't matter if you ordered online, it doesn't matter if you wanted buy online, pick up in-store or curbside pickup-- that store that is near where you live or work, that's fulfilling your order. And we believe that that is really what is the magic that's going to make the shopping center more valuable long term.

ADAM SHAPIRO: Connor, is there a shortage of space in these types of shopping facilities? And will that drive up rents, or is that flat right now?

CONNOR FLYNN: So, as you know, real estate, especially retail, is a very local market. It all depends on the supply and demand dynamics in a local corner that you're operating on. Where we tend to focus our portfolio is in the best markets across the country, the top 20 MSAs, where there's barriers to entry. And there hasn't been new supply for decades. And so the nice part about where we sit is that there's more demand right now than there is supply.

And so that's pushing rents. And so you will see our rental spreads, which is the new lease rent versus the old rent that was being paid previously will be very solid positive. And so you'll see high single digits from us going forward. And we continue to think that we have pricing power because of those locations that I mentioned.

SEANA SMITH: And Connor, the areas that are reopened, just give us a glimpse as to what you're seeing. What has the traffic been like?

CONNOR FLYNN: So traffic has really snapped back. It's pretty remarkable. I mean, when we launched curbside pickup nationwide across the country, that, in a way, gave all of our retailers almost, like, a pseudo drive-through to allow them to do more online deliveries, as well as pick up through the time where they weren't really allowed to operate at full capacity.

The nice part now when we look at our traffic patterns is, it's almost back to pre-pandemic levels. And the grocery store seems to continue to be the anchor of choice, as multiple trips per week happen there. But then the cross-shopping occurs now that more people are allowed to open at full capacity. We have really a nice merchandising mix when you look at driving traffic at all times during the day. And really, you're starting to see that traffic rebound to pre-pandemic levels.

SEANA SMITH: Connor Flynn, it's always great to have you. Thanks so much for taking the time to join us, CEO of Kimco Realty.