As U.S. Retail Fundamentals Improve, Kimco Still Sees Strong Growth in Canada and Mexico

3/10/2011 | By Matthew Bechard

David Henry, president and chief executive officer of Kimco Realty Corporation (NYSE: KIM) said there has been a dramatic shift in fundamentals in the shopping center market from the struggles of the Great Recession. Henry, speaking with during NAREIT's Washington Leadership Forum in Washington, D.C., said tenants are no longer worrying about getting out of leases but are instead thinking about expanding.

"With virtually no new development in our sector, rents and occupancy rates are improving dramatically," Henry said.

In addition to operations in the U.S., Kimco owns shopping centers in Canada and Mexico, two areas where the company is seeing good results and optimistic about the future. Henry said Canada is the company's strongest region at the moment, with the portfolio 98 percent leased.

"Canada has fiscal discipline, it has natural resources, it never had the housing bubble, the banking system is strong and many U.S. retailers are expanding north of the border," Henry said. "There is a lot of demand for limited space in Canada."

Kimco is the largest owner of retail assets in Mexico, and Henry said he likes the long-term prognosis for the country. He pointed out that tenants like Wal-Mart are expanding in Mexico, with 300 store openings in 2010 and 2011.

"Mexico is very under-retailed," Henry said. "It has about 1/25th the retail space per capita the U.S. has. Depending on how you count, the U.S. has somewhere between 50,000 and 100,000 strip shopping centers. Mexico has less than 1,000."

Kimco maintains an active joint venture program, to the tune of $10 billion in assets under management with 20 pension funds and life companies.

"For us, this is a great way to be competitive in terms of buying the very best quality shopping centers," Henry said. "If we're 50-50 with Canada Pension Plan, and we're earning some reasonable fees from Canada Pension Plan, it enhances the return on our 50 percent of the deal and it allows us to pay a competitive price for a high-quality property."

Kimco itself has made a handful of individual asset purchases in recent months. With larger-scale mergers taking place in other sectors like industrial and health care, Henry said the potential does exist for a more substantial deal to take place in the retail sector.

"It is conceivable you could see a stock-for-stock transaction in our sector. There are quite a few smaller retail REITs that probably could be consolidated in some form or fashion," Henry said. However, he added that most management teams don't want to sell their company when their stock price is at a fraction of where it had been trading in the good times, especially when there is no longer a liquidity crisis.