Kimco FFO Matches Ests, Revs Beat

Zacks

Retail real estate investment trust (:REIT), Kimco Realty Corporation (KIM) reported first-quarter 2014 adjusted funds from operations (:FFO) per share of 34 cents, in line with the Zacks Consensus Estimate and up 6.3% year over year.

The company experienced notable leasing activity and growth in revenues as well as occupancy levels in the quarter. Total revenue increased 8.7% year over year to $246.9 million and surpassed the Zacks Consensus Estimate of $235 million.

Quarter in Details

In the U.S. Shopping Center Portfolio, pro-rata occupancy was 94.7%, up 100 basis points (bps) from the year-ago period. Pro-rata occupancy in Kimco’s combined shopping center portfolio was 94.5% at the quarter end, reflecting an uptick of 90 bps from the prior-year quarter. Same-property net operating income (:NOI) in Kimco’s U.S. portfolio and combined portfolio rose 2.0% and 1.5%, respectively, on a year-over-year basis.

Kimco inked a total of 625 new leases, renewals and options in the combined portfolio, spanning 3.8 million square feet of space. Moreover, in the U.S. Shopping Center Portfolio, pro-rata rental-rate leasing spreads moved north 8.8% with new leases escalating 50.7% and renewals/options climbing 4.6%.

Kimco exited the quarter with $268.9 million of cash and cash equivalents, up from $148.8 million as of Dec 31, 2013.

Notable Portfolio Activity

During the quarter under review, Kimco acquired 5 premium shopping centers for $216.0 million. Subsequent to the quarter end, the company closed the buyout of a 24-property retail portfolio in the Boston metropolitan market for $270 million. Also, Kimco acquired the remaining 60.9% stake in the 12-asset Kimco Income Fund I portfolio for $408.0 million. Notably, since Kimco’s Investor Day in Sep 2010, it purchased a total of 123 premium properties for $2.8 billion in the U.S.

On the other hand, in the first quarter, Kimco offloaded its ownership stake in 11 assets in its U.S. portfolio and generated $63.7 million in proceeds, of which its share was $42.1 million. Also, early in the second quarter, the company divested 4 assets for $18.5 million. Of the proceeds, the company’s share was $11.3 million. Notably, since Sep 2010, the company sold 158 retail properties for $1.3 billion, of which, Kimco’s share was around $751.7 million.

Moreover, in the Latin America Portfolio, Kimco vended 9-property retail portfolio in Mexico for $222 million. The pro-rata share of that sale price was around 153 million for the company. After the disposition of these assets, the company is left with 36 Latin American assets.

2014 Outlook Reaffirmed

Kimco reiterated its guidance for 2014 adjusted FFO per share and expects it in the range of $1.36 – $1.40. The Zacks Consensus Estimate of $1.39 also lies within this range. Kimco's outlook is based on expectations of combined portfolio occupancy growth of 50 – 75 basis points and same-property NOI increase in the range of 2.5% to 3.5%.

Dividend

Kimco announced a quarterly cash dividend of 22.5 cents per share on its common stock. The dividend will be paid on Jul 15, 2014, to shareholders of record on Jul 3.

Our Viewpoint

Continuing with its decent performance since the last couple of quarters, Kimco met our expectations yet again. Improving operating portfolio performance and Kimco’s successful efforts to improve its core portfolio through the divestiture of non-strategic assets and acquisition of high-quality properties in U.S. are commendable. Going forward, solid demand for its properties, its portfolio transformation initiative, along with easy access to capital, promises considerable upside potential. However, the near-term earnings dilution from high disposition activity remains a concern for this Zacks Rank #3 (Hold) stock.

Investors interested in retail REITs may consider stocks like General Growth Properties, Inc (GGP), Acadia Realty Trust (AKR) and Saul Centers Inc. (BFS). All the stocks hold a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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