Kimco Marginally Edges Past Estimates

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Kimco Realty Corp. (KIM), a leading real estate investment trust (:REIT), reported total revenues of $231.4 million in first quarter 2012 compared with $225.1 million in the year-earlier quarter – an increase of 2.8%. Total revenues for the reported quarter exceeded the Zacks Consensus Estimate of $228 million.

Kimco reported first quarter 2012 FFO (funds from operations) of $126.2 million or 31 cents per share compared with $122.0 million or 30 cents in the year-ago period. Funds from operations, 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.

The reported FFO for first quarter 2012 marginally beat the Zacks Consensus Estimate by a penny. Excluding certain non-recurring items, FFO for the reported quarter was $125.9 million or 31 cents per share compared with $121.2 million or 30 cents in the year-earlier quarter.

Overall occupancy in Kimco’s combined shopping center portfolio was 93.1% at the end of the quarter, an increase of 30 bps compared with first quarter 2011. In the U.S. portfolio, occupancy was 93.0% as of March 31, 2012, an increase of 50 bps compared with the year-ago period.

Same-store net operating income (:NOI) in the combined portfolio increased 2.9% in first quarter 2012 compared to the prior-year quarter. Same-store NOI (cash-basis, excluding lease termination fees and including charges for bad debts) in the U.S. portfolio increased 2.8% year-over-year.

During the reported quarter, Kimco executed a total of 734 leases spanning 3.8 million square feet. These included 91 new leases in the U.S. same-store portfolio totaling 503,000 pro-rata square feet and 343 lease renewals and options for 2.9 million pro-rata square feet. In addition, Kimco executed 89 new leases totaling 185,000 square feet for spaces vacant for more than one year. Leasing spreads in the U.S. portfolio increased 10.0% (cash basis).

The company acquired 2 shopping centers during the quarter, along with a land parcel for approximately $18.6 million, including $4.2 million in mortgage debt. In addition, Kimco acquired the remaining 85% ownership interest in 2 grocery anchored shopping centers from an existing institutional joint venture. Spanning 365,000 square feet of space, the properties were acquired for a purchase price of $75.5 million that included $54.9 million in mortgage debt.

During the reported quarter, the company also purchased a 50% ownership interest in an unencumbered grocery anchored shopping center totaling 110,000 square feet in Ottawa, Ontario, for $16.5 million. Subsequent to the quarter-end, Kimco acquired the remaining 70% stake in a 680,000 square foot grocery anchored power center in Towson, Maryland, from an existing institutional joint venture for $127 million, which included $57.6 million in mortgage debt.

During first quarter 2012, Kimco completed the divesture of 15 assets for $215.4 million. This included the sale of 13 non-core assets, 2 joint-venture properties, and the repayment of $83.7 million in mortgage debt. Spanning 1.2 million square feet of space, the divested non-strategic properties were primarily located outside the key metropolitan statistical areas (MSAs) targeted by the company. The properties were sold for $95.9 million, including the repayment of $1.3 million of mortgage debt.

With this asset sale, Kimco presently has 53 non-strategic properties in its kitty aggregating $289.3 million, including the repayment of $41.6 million of mortgage debt. The company also sold a joint-venture property spanning 713,000 square feet in Schaumburg, Illinois, for $118 million. The selling price of the property, in which Kimco had a 45% ownership stake, included the repayment of $82.5 million of mortgage debt.

In addition, during first quarter 2012, the company sold an unencumbered joint-venture property for $1.6 million. Kimco had a 50% ownership stake in this 31,000-square-foot property.

The reported quarter also saw the company recognizing $9.4 million of fee income related to its investment management business, including $7.7 million in management fees, and $1.7 million in other ongoing fees. Kimco had 281 properties in investment management funds with 24 institutional partners at quarter-end.

During the quarter, the company generated $11.4 million of income from its structured investments and other non-retail assets, out of which $8.5 million was recurring in nature. During first quarter 2012, Kimco reduced its non-retail investments by $28 million primarily from the sale of a joint venture hotel property, 2 separate urban properties, a preferred equity investment and investment securities. As of March 31, 2012, Kimco reduced its non-retail assets to approximately $485 million compared to $790 million at the end of first quarter 2011.

Subsequent to the quarter-end, Kimco obtained an unsecured term loan worth $400 million to increase its liquidity. The loan is scheduled to mature in April 2014, and includes an accordion feature by virtue of which the company can increase the debt maturity by three additional one-year periods to April 2017 at its own discretion.

The term loan bears an annualized interest rate at LIBOR plus 105 basis points, which is based on Kimco’s present credit rating. The company expects to utilize the proceeds from the loan to repay its existing debt.

At quarter-end, Kimco had over $2 billion of liquidity, with a consolidated net debt to recurring EBITDA (earnings before interest, tax, depreciation and amortization) ratio of 5.4x. For fiscal 2012, the company expects recurring FFO in the range of $1.22 – $1.26 per share.

We maintain our Neutral recommendation for the long term on the stock, which presently has a Zacks #3 Rank translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #2 Rank (short-term Buy rating) for CBL & Associates Properties Inc. (CBL), one of the competitors of Kimco.

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