NINE THINGS WE’RE THANKFUL FOR THIS HOLIDAY SHOPPING SEASON
This Thanksgiving season, Kimco and the greater retail industry have a lot to be thankful for. The National Retail Federation predicts that 2014’s holiday sales are going to increase 4.1 percent over last year, totaling approximately $617 billion. 25 percent of shoppers are projected to start their holiday shopping early. Retailers are also showing creativity as they continue to tailor the shopping experience and personalize it for consumers. But as we gear up for the holidays, and look ahead to 2015, we wanted to also take a moment to reflect on the things we’ve been especially grateful for over the past year:
- A future of redevelopment. In a competitive market that’s pushing cap rates to historic lows, we believe that all roads lead to redevelopment, and Kimco’s best use of capital is in our redevelopment pipeline, which currently includes 226 projects totaling approximately $1.1 billion. This project list continues to grow in size and to materially produce results, as seen in our Q3 2014 earnings. For example, our U.S. same-site NOI growth increased 4.9 percent compared to Q3 2013, including a 1.7 percent increase from the inclusion of redevelopments. As property values increase, they have a favorable impact on our net asset value.
- An omni-channel presence that’s here to stay. With Amazon opening its first brick and mortar store in New York City this holiday season, omni-channel retailing is showing itself as the new normal for retail. As the lines blur between enclosed malls, outlet malls, power centers, grocery centers, and online and mobile channels, retailers are finding new ways to innovate and engage consumers. Today, there’s an enhanced industry standard as retailers take a page from Apple’s book and strive to provide brand awareness and an interactive environment, all while providing top-of-the-line customer service. (For Apple, the strategy is paying off, with increased consumer demand and rallying stock prices.)
- A low interest rate environment that continues to offer “free money.” Today’s low interest rates continue to drive buyers that are able to use debt to secure solid double-digit leveraged internal rates of return (IRR). This is pushing cap rates down across all asset types, from trophy all the way down to lesser quality types.
- An upswing in small business performance. Recovery of mom-and-pop tenants is starting to bring service-based local retailers back to retail portfolios. This is a boon to landlords, allowing us to connect to the local community and offer a differentiated suite of offerings at our shopping centers. In fact, our Q3 2014 results show that more than half of our new signed leases in the past quarter were with local businesses!
- A new CR calling card. Corporate responsibility and sustainability programs are catching on as industry standards, and we’re proud to see these efforts take root nationwide. This summer, Kimco published its inaugural 2013 Corporate Responsibility Report to inform peers, stakeholders, and investors of our notable measures to give back to the environment and the communities that we serve. We are especially thankful to those who helped us achieve a nine percent absolute reduction in same-site direct and indirect energy consumption from 2012 to 2013, which was largely a result of a $2.1 million investment throughout 109 sustainable property improvement projects. We also just launched Illumi-Nation, an $8 million exterior lighting enhancement project that will transform 40 percent of our Western Region portfolio.
- A healthy workplace. This year, Kimco banded together to participate in the Global Corporate Challenge. As part of the 100-day challenge, 490 Kimco employees, comprising 70 total teams, committed to improve their healthy living habits and used walking, running, biking, enhanced diets, and other activities to achieve their goals. Not only did it make us healthier and more productive, it also allowed us to form new relationships between employees. We’re thankful for all of those that continue to encourage and support one another in achieving our individual wellness goals.
There are also some trends leading into 2015 that are important to the retail industry:
- A retail supply that remains constrained. New development projects are scarce but demand for retailers to expand is plentiful. That market combination, along with the broader demand for domestic properties, has helped increase the values of existing U.S. real estate.
- “Green shoots” of ground-up development to increase through 2017. New ground-up development opportunities remain limited, but will start to pick up for the next three years as REITs achieve stabilization in their occupancy levels and available supply stays scarce. Big box spaces (tenants larger than 10,000 square feet) are currently enjoying 98.2 percent occupancy throughout Kimco’s portfolio and we will continue to look for external growth opportunities through this type of development.
- An expansion of health retailers. Health-conscious shoppers are increasingly seeking out tenants that specialize in organic products, specialty wellness goods, or that offer fitness programs like Pilates, yoga, etc. This is reflecting positively on our tenant mix. Target, for example, is expanding its wellness centers to help shoppers manage chronic conditions and offer preventative medicine. Jones Lang LaSalle predicts that consumer interest in organic and free-range food will push sales to increase 92 percent by 2018, which will fuel grocer expansions in the coming years.
There’s a lot to be thankful for as we reflect on the continued strength of the retail industry this year and all of those who make that strength a reality. What are you thankful for this year?