Transcript

Aaron Strauss  0:04 

You’re listening to the Dealmakers’ Edge with A.Y. Strauss, diving deep into stories behind commercial real estate leaders. The Dealmakers’ Edge highlights the stories, struggles and successes behind major commercial real estate investors. You’ll get a behind the scenes look at commercial real estate leaders and their unique edge. We hope you’ll follow along for regular episodes, highlighting exceptional voices of the commercial real estate industry and beyond.

Today, we’re joined by Ross Cooper, who is the president of Kimco, which is a publicly traded REIT on the New York Stock Exchange and has been public since 1991. Headquartered in Jericho, New York, Kimco has over 94 million square feet of gross leasable space over 550 shopping centers. They are North America’s largest publicly traded owner and operator of open-air, grocery-anchored shopping centers and mixed-use assets. Ross, we’re delighted to have you on today. Thanks for joining us.

Ross Cooper  1:02 

Well, thank you, Aaron; it’s appreciated. Thanks for having me. I am the President and the Chief Investment Officer and I’ve been with Kimco since 2006. I started as a junior analyst in the acquisitions department, going door-to-door with my fellow analysts and other deal makers, and just really figuring out the business, understanding open-air retail, volunteering to do as much as I could, with my colleagues, to help them with their due diligence, help them with their dealmaking and really just learn and grow from there.

I took an opportunity within Kimco in 2009, during the great financial crisis to move down to South Florida and get more involved in the operations of the business. Started doing some leasing asset management, overseeing all the rent collections for the southern region, which as you can imagine, during the GFC, was a full-time job in itself. And then, as the capital market started coming back, the investment community started getting more comfortable. Again, with retail, I jumped back into the dealmaking side of things. And back in 2015, I relocated to New York to our headquarters and took on a more national role. And I’ve been back here ever since.

It’s been quite a wild ride just in the last five years or so being back – between the retail apocalypse in 2016; and then sort of moving forward into what was a really nice recovery for the company, right up until the pandemic and dealing with everything that came from that. And now being in a place where retail, open-air retail in particular, is really back in the minds of a lot of investors and has really shown its utility through this pandemic. We feel that we have the wind at our backs a little bit in the retail world, there’s always, you know, some surprises ahead of us. We’re just being extremely disciplined in our investment strategy, but we’re seeing a lot of demand for our product. And we’re really excited with the market that we’re in today. So we’ll see what the rest of the year brings and what 2022 brings ahead.

Aaron Strauss  2:55 

Yeah, it’s fantastic. I know just as a stock price pop over the last year, it’s really testament all the hard work you’ve been doing; the cream always rises to the top. Quality assets, quality management, quality oversight, quality governance that reflects you know, even in retail, which has had its name in lights for different reasons. People flock to quality and, obviously, been grocery-anchored and necessity-based has been fantastic. Talking about the fundamentals, obviously, we can avoid the broader pandemic headlines. I think people have sort of heard enough of that. But the fundamentals of retail investing today are you seeing it’s a good investment market are you being a little more conservative? You’re constantly in acquisition mode, and you’ve got a lot of capital behind you, but tell me about how you view the market in the next year or two, generally, for acquisitions.

Ross Cooper  3:38 

It’s a really nice time for us to be strategic, to be disciplined, but to be aggressive, where it makes sense. And I mentioned the great financial crisis and my perspective, from the company’s perspective, there were lots of lessons learned during that downturn that we pulled forward and utilized to our advantage during the pandemic. I mean, obviously, it was an awful period of time for a lot of reasons. And I’m not going to downplay that, but there were some silver linings for the company in particular, dating back to the GFC.

Back in 2008, 2009, frankly, the company was not well positioned to withstand such an incredible downturn. The balance sheet was not where it needed to be. We had too much leverage going into the unexpected crisis. We played a lot of defense and, frankly, for the last seven or eight years post-recession, Kimco was really building itself back to position of strength. It was a very long recovery from the recession up until the pandemic, and we knew that, at some point, there was going to be another downturn. Clearly didn’t anticipate that it was going to come in the form of a global pandemic, but at some point, there was going to be another downturn – it is a cyclical business. So what we did over that seven, eight-year period was strengthen ourselves.

We exited a lot of the non-core markets that we didn’t feel have the supply, demand dynamics, long term for retail, that we’re to our benefit. We sold a lot of assets; we paid down a lot of debt to make sure that we had a substantial amount of liquidity, so that when this next downturn did come, whichever form it ultimately presented itself, we would be in a position of strength to play offense. So when the pandemic did hit, we had the most liquidity available to us in the company’s history. You can call it better lucky than good sometimes, but we just renewed our revolving credit facility, which was a $2 billion facility in February 2020. So right before the pandemic started, so we had full access to that balance sheet. And we tried to be very opportunistic. In the early days of the pandemic, we started a structured investments program where we were putting out preferred equity and mezzanine financing on high-quality retail assets that needed some, some funding for one reason or another. And we were able to obtain a right of first refusal on those assets that if, and when, the owner ultimately looked to sell, it would potentially be an acquisition pipeline for us going forward into the future. And then we were working for many years actually, on an acquisition, a merger of another one of our peers based in Texas. Those conversations began back in 2017. They were on again off again for a couple of years, as you can read in the publicly filed proxy materials. There’s a whole background section that sort of outlines, you know, some of that back and forth.

But one of the, you know, silver linings of the pandemic for us was that we were able to use that financial strength that I previously mentioned, to finally move forward and to acquire that that other public company called Weingarten Realty. We actually just closed on that acquisition in early August of 2021. We now have an additional 160 shopping centers, really great, great assets throughout the Sunbelt, mostly grocery anchored, we were able to onboard about 100 new employees from Weingarten really great people in all facets of our business – additional leasing people, property managers, developers, legal accounting, etc. goes on and on. We’re really excited about the position the company is in right now. And frankly, we wouldn’t have been able to accomplish that if we hadn’t prepared ourselves based upon what we have learned last time around.

Aaron Strauss  7:20 

Really exciting story and the timing couldn’t have been better, as you described, and the preparation. Talk to me a little bit on the Sunbelt, obviously, I know you’re doing some large JV deals there. You’re really active there; a ton of capitals is there. And it may not have been where you traditionally played. Obviously, you’re facing Jericho, New York, you’ve done deals nationally but, talk about the Sunbelt generally, and what your strategy is there.

Ross Cooper  7:43 

We have been active in the Sunbelt, and I would say one of the benefits of Kimco as an organization is we’re very diverse. We have geographic diversity in our properties. We own now over 550 shopping centers with this new acquisition, located throughout the major MSA is throughout in the US, the top 20 markets from East to West Coasts, including certain parts of the central part of the country – Texas, Denver, Phoenix, a little bit in Chicago, Minneapolis. So, we’ve always been diverse in our geography, we’ve always been very diverse in our tenant base. When you look at our largest tenants, you know, the TJX Companies is just over just around 4% of our total average base rent, or annual base rent, followed by Home Depot, and then a lot of grocers and other A-credit tenants. We’ve always prided ourselves on having that diversification, which is so important in retail. But when you look at the demographic shifts that are happening in this country, and you think about the lifestyle, and some of the disposable income, and some of the markets throughout the southeast, there’s a real story to be told.

You know, I mentioned I live down in South Florida for six years and covered the southeast of the country for Kimco. I could see firsthand what was happening in some of those markets. Throughout the Carolinas, you look at Charlotte, like the Research Triangle, you look at South Florida, you know, Central Florida, in Orlando, Tampa, on the west coast of the state. There’s a lot of exciting things happening in that part of the country. And that’s not to say that we’re not bullish on the recovery in New York. And we’re always going to continue to see the benefits of living and investing in California and the Pacific Northwest. The supply constraints that you see in a lot of those markets, but with where we are today. And it’s not just retail, you look at all asset classes, whether it be industrial, multifamily, self-storage,  the Sunbelt is a very hot market for good reason

Aaron Strauss  9:34 

For all the obvious reasons, for sure. Tell me about the things that are not sort of the retail story. I mean, the preferred and mez space you’ve gotten into that’s your core strength, but I know that certain properties sometimes get redeveloped. You’re not really in the redevelopment business, per se, but there’s interesting joint ventures on the periphery, how much are you dipping your toes into things that are outside of the traditional sort of core Kimco deals?

Ross Cooper  9:57 

That’s very much a huge focus for the company. We do pride ourselves on our redevelopment and our development capabilities. We have staffed up over the last five or six years with a significant amount of really, really high-quality developers. And it starts from the dirt. The way that our process works is we have dedicated employees that are focused entirely on entitling our asset. So we view ourselves, while our expertise is retail, we’re a real estate company. And we own a lot of properties throughout the country, as I mentioned, that were built in some cases in the 1950s and the 1960s. In these dense infill locations, where we’ve seen these cities grow up around us. We’re still in many cases, sort of the last single-story retail shopping center with 75% of our, you know, parking fields that are non-income-producing surface parking lots, and you have high rises and density all around us.

We are very much focused our real estate on highest and best use, we have over 5000 multifamily units and titled throughout our portfolio, we have another 5000 in the works being entitled, that should be active in the next few years. When you think about what the future of Kimco is, it’s going to be a combination, always again, at our core, open-air retail, and primarily grocery-anchored retail. But very selectively throughout the country, we’ve been activating mixed-use projects where we can bring to that property a multifamily component, we can bring to that property a hospitality component or an office component, whatever the case may be for that real estate. But we’re going to do it in a very selective way.

We may put some Kimco capital into these projects with a joint venture partner that has that expertise in multifamily or hospitality. We’ve done a significant amount of longer-term ground leases, with hotel developers, office developers, multifamily developers. We have contributed some of our dirt into partnerships in order to effectuate some of these projects. And in some cases, we’ve just sold off the dirt and retain the retail so that we sort of get the benefit of that non-retail use while still maintaining the core retail component which is our bread butter.

Aaron Strauss  12:11 

Great answer. Continue to innovate and obviously keep your investment thesis strong, which is continuing to add the highest and best use and it’s clearly coming through the investor community. Tell me a little bit about your edge. You’ve got a lot of responsibility: relatively young guy got a personal life, got a professional life. You’ve got a lot of capital that’s watching how you’re managing day to day, how the governance at Kimco; I believe you guys have had a great reputation, great run for a really, really long time. How are you sort of managing that pressure of having so much responsibility? Obviously, you have a great team, you’ve been there a long time, have grown up in the business, but it’s a stressful role. I mean, how are you sort of managing that day to day I’d love to hear.

Ross Cooper  12:49 

You said it. It’s the team. When we think about what Kimco is, and, you know, the company that was established in the 1950s, it’s all about culture. And a lot of what we do is about communication. In the midst of the pandemic, you know, it was pretty terrifying early on, not knowing how a company of our size and our scale could manage through a situation where people were all working from home. I give a ton of credit to our entire team, our IT department – first day of the pandemic, you know, everybody was mobile and working from home. We have our cell phones, we have our iPads, we have our laptops. And it’s incredible to think that the communication actually strengthened over the pandemic, which was not a given at the early stages.

I’ve been fortunate that, you know, I sort of grew up with the company. I had a lot of mentors that really helped me get to where I am. I try to pay that back as best as I can. One of the things that we do at Kimco is that every single new hire that comes into the company – and as I mentioned, we just onboard 100 new employees from Weingarten via our acquisition – every single new employee has a mentor. It is so important for us to align new people with people that have been at the company for a while, because culture is something that we feel so strongly about here. And it’s hard to teach that, especially in an environment where people are still remote or hybrid, or whatever the case may be. So it’s really all it’s all about the team.

And you know, I have such great people that work with me on my team that make it so that you can sort of take a step back and let some of these processes play out. You know, empower the people that you work with to make decisions so that it doesn’t all fall on your shoulders. Because it can be overwhelming if you try to take on too much at the same time. And I’ve just taken on a role, and sort of an attitude, of trying not to get too high or too low at any given point, It is a cyclical business. And you know, right now we feel that we’re in a great place as an organization, but not too long ago, we were dealing with all the stresses of the early stages of the pandemic. And I’m sure at some point in the not-too-distant future, there’s going to be some other challenges that we’re going to have to deal with. So you try to enjoy the wins when they happen, but know that there’s going to be, you know, tougher times ahead that you just kind of have to battle through.

Aaron Strauss  15:16 

Really well said. And besides that open, honest communication. If I were to guess I would say probably, humility must be a core theme in your culture, just listening to you speak, would you describe the culture in another way? Any other adjectives you think that’d be applicable?

Ross Cooper  15:29 

You know, for me, personally, I think responsiveness is so important. And it’s such a simple thing, but you just don’t see it from everybody. I sort of pride myself on getting back to people very quickly, whether it’s, you know, a phone call, an email, a text message. If you reach out to me, even if I don’t have the answer for you, or it’s not something that I can attack on that given day, just as simple like, hey, got your message, you know, I’m looking into it, I’ll be back to you. It goes such a long way. And I find that not everybody does that. It’s just something that I’ve sort of taken as a calling card for me. I try to impart that on the people that I work with, it’s little things like that, but I think really go a long way.

Aaron Strauss  16:09 

Well-said same with me, it drives me crazy if I can’t get back to somebody soon enough. It shows you care; you can’t fake caring. You’ve obviously cared deeply and passionately about what you’re doing every day. Next question I have for you is:  somebody, a new graduate, maybe they’ve been in real estate or some other field for a couple years, they want to break into retail. They’d love to get into the shopping center business, and they manage to squeeze into your schedule for half an hour for coffee. What types of things are you telling that person who’s looking to build a career as an owner investor over time?

Ross Cooper  16:38 

I think it’s just being open minded and being willing to do things that are maybe not overly comfortable. I can’t tell you how many people I have conversations with, to your point, young people that are in undergrad or graduate programs that reach out to me on a complete cold call, or email me cold, probably don’t anticipate getting a response. And I’ll get back to him in a day and say, “Hey, happy to chat with you. Let’s put something on the calendar, we’ll catch up.” It was probably very challenging for that person to actually take that step, but, while it’s not necessarily going to result in a job offer at Kimco, I can give a little bit of my experience or put them in touch with somebody else that maybe does have an opening that works.

It’s really just having that open door mentality, and that open mindedness. You know, for me at Kimco starting in 2006, as the most junior person in the organization, it’s pretty daunting to even think about, you know, how do I get from where I was then to where things stand today. And for me, it was just kind of putting your head down and taking it one day at a time. And being willing to take opportunities that maybe weren’t what you anticipated. I didn’t plan on taking the position with the company in 2009, in South Florida. My wife is from there, and she has family there, so it worked out nicely for us, but it was not part of my quote unquote, plan.

I sort of jumped at that opportunity when it presented itself. It enabled me to learn a different part of the business than I had experience with on the operation side. Then having sort of that well-rounded knowledge when our CEO Connor Flynn reached out and asked me to move back to New York, I jumped at that opportunity – even though I started to really love living in South Florida and could have seen myself really establishing my life down there. But being flexible and knowing that taking that next step was important for my career, it’s sort of a piece of advice that I would definitely give to others.

Aaron Strauss  18:37 

For sure; yeah, I think you actually did the reverse. You came to New York, you know, and everyone else went to Florida, but you’re still buying down there.

Ross Cooper  18:43 

Maybe one day I’ll be back. Like I said, you never know what the future holds

Aaron Strauss  18:46 

Any laser focus goals for the next year ahead? I mean, obviously, there’s a lot of blocking and tackling; just getting the core business executed and day to day is massive. But if you had to focus one on one thing over the next year, is one thing resonating in your mind?

Ross Cooper  19:03 

I haven’t thought about one year ahead. We try, one of the nice things about our company – and I would say our management team in particular, we have a pretty young team, our CEO is in his early 40s; I’m just about 40, our COO is also early 40 – so we try to talk longer term. It’s so easy to get caught up in the quarter to quarter. You know, reporting, particularly as a public company, we are releasing our earnings in a couple of days. And then you know, as soon as that’s done, we start working on the next 90-day cycle. And that’s basically what we’re judged on.

That’s our report card is our stock price. But our real estate is a real living and breathing thing that needs some nurturing and oftentimes will not reach its full potential for many years to come. So one of the things that we talked about with our redevelopment program, it’s not thinking about what is our portfolio look like next year. Granted, we’re making daily decisions that impact that, but we just put out earlier this year, our 2025 goals, and we’ve put out ESG goals for the company that are 2030, 2040, 2050. So as important as it is to make good quality day-to-day decisions, we’re trying to look at our portfolio as what can it be ten years from now? What could it be beyond that? And I think that’s important as a real estate investor if that’s what your strategy is. There are people that are building to sell and they’re very focused on the here and now. We’re as much focused on the here and the now, as we are with what things look like down the road.

Aaron Strauss  20:35 

Well said, Ross, there’s no question that leadership – environmental, social governance – investors in the world are paying attention to that and clearly going out to the highest and best use, having the focus you have, day to day execution, it’s really a great story that has many, many years ahead to watch unfold further.

In any event, I want to thank you for being on this morning. It was a fantastic conversation. Really appreciate the time.

Ross Cooper  20:59 

My pleasure. Thanks, again, for having me.

Aaron Strauss  21:03 

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