Milton Cooper, Chairman and CEO of Kimco Realty Corporation, has been developing value in the retail sector since before there was a REIT industry. His company has been among the top performers for years, and with a 44 percent growth in funds from operations last year, Kimco continues to show that Cooper's strong, conservative leadership is keeping the company going strong.
Portfolio: When you started Kimco with your longtime partner, Martin Kimmel, how did the two of you divide up the duties as you built the company?
Cooper: I first met Martin in 1959. Marty had a background in construction of apartments and I was in a private law firm. When we got going, he handled the construction and some of the leasing, and I did some of the legal work and planning and financing.
Portfolio: As someone who's been in the REIT industry for a number of years, what do you see as some of the strengths and weaknesses of today's REITs as investments?
Cooper: The strength would be that you have managements with entrepreneurs who have a stake in the business and have really great vision and skill. By and large I see that among the major REITs. And, very importantly, they have performed—among the major REITs there has been marvelous performance.
As for areas that might need work, at this point in time I'd say there is still not as strong a demand for REIT stocks as there should be, based on the strength of their performance.
Portfolio: Kimco has tended to do very well, even when the market has been down. Your overall corporate strategy seems to have helped with that. Could you tell us a little about that?
Cooper: Well, our strategy is to always keep a strong balance sheet and to maintain our A- and A3 rating, the theory being that it will give us access to capital in difficult times. And that really is one of our essential strategies—always positioning our balance sheet to have access to capital. And having talented people as part of a team that is fast on its feet so that we can seize the opportunities that down markets always present.
If you have a very strong balance sheet, watch your debt maturities and watch cash flow—always focusing on the essentials of real estate—you can weather troubles and even be in a position to seize opportunities. But the trick is to recognize that there are always going to be these hiccups in markets, and plan for them.
Portfolio: A lot of industry insiders have credited Kimco with setting a strong example for companies in the industry to follow in the 1990's when many were getting into the equity market through IPOs. Could you tell us a little about the strategy Kimco employed?
Cooper: Well, we made the decision that we had to think of ourselves as a corporate entity and focus on entity financing. We worked to eliminate as much secured debt as possible in the parent and make the steps that were needed for a public company. It takes time, and it doesn't come overnight. It's not easy to transition from a private entrepreneurial company to a public company. There weren't that many models in the real estate business. You had to look at models outside of real estate. If you look at the success stories, it's really all about balance sheet, people and discipline.
Portfolio: Kimco spun-off Kimco Income REIT last year; how has that venture with the New York Common Fund done?
Cooper: The company was originally formed with $269 million of equity. The initial equity has been fully invested in 46 properties with a total of value of about $870 million. And the returns between cash distributions and the appraised value of the assets on a liquidating basis have been close to 21 percent. Based on that performance, we are increasing the equity by another $300 million, of which The New York Common Fund is committed for $150 million, and we're putting in $75 million. And it's planned that other investors will put in another $75 million. So the performance has been very strong.
Portfolio: What's the strategy difference between the Income REIT and Kimco, the parent?
Cooper: The Kimco parent seeks high returns because of the capital structure and where it really has an expensive cost of equity that approximates two-thirds of its capital structure. The income REIT is formed with a capital structure that consists of 75 percent individual non-recourse debt and 25 percent equity, so it is able, since the equity component is so small, to buy properties that have returns that are not adequate for the parent, because it matches 75 percent of the investment with non-recourse debt.
Portfolio: With the REIT Modernization Act going into effect next year, how do you see the REIT industry moving forward?
Cooper: Well, we now have the ability to do many of the things in real estate that were previously prohibited by the REIT restructure. There are a wide range of opportunities available to us if we can execute.
Portfolio: It seems that everyone in the REIT and REOC business speaks very highly of you and the work that you have done in building Kimco. How does it feel to be so universally admired in your industry?
Cooper: They're too kind. This is a wonderful industry with some wonderful people. I just think that when you compare the CEOs in the REIT industry with so much of the rest of corporate America, they stand out. Many times in some of the larger companies, the position can be ceremonial, political. The REIT industry is blessed with some wonderful entrepreneurs and men of great character. And they really know the real estate business.
Portfolio: There are a number of analysts who have said that the management at REITs is evolving. Do you think that's true, or do you think that the industry continues to be primarily an entrepreneurial enclave?
Cooper: I think it's partially true in this sense: that as the size of many of the REITs has grown so dramatically, the CEOs and the boards who recognize the need for more professional management and some of the skills that the larger caps require. I don't know how many REITs we have now with market caps in excess of a billion, but there are quite a few. And, indeed, we have some with market caps in excess of five billion, and it's growing. So the natural consequence is that when you go from smaller companies to companies with market caps in the billions, the need for professional management is more obvious. And that is happening.
Portfolio: On a personal note, we wanted to congratulate you and your wife on celebrating your fiftieth wedding anniversary. What do you have planned?
Cooper: We're going to Paris for a vacation—it's one of our favorite places. I highly recommend Paris. We very much like to travel. Along with Paris, we also favor London and Italy. We like to take in the culture, visit the theater, walk a lot. Paris and London are both great walking cities.
Portfolio: When you have leisure time while you're here in the States, what do you like to do?
Cooper: I read a lot, and I play tennis.
