Kimco Outperforms Q2 Estimates

Zacks Equity Research

Kimco Realty Corporation (KIM) reported second-quarter 2013 adjusted funds from operations (:FFO) per share of 35 cents, beating the Zacks Consensus Estimate by 2 cents. Moreover, this was up 12.9% from 31 cents in the prior-year quarter.

The results at this retail real estate investment trust (:REIT) were aided by strong operating portfolio performance. Kimco also raised the lower end of its previously issued adjusted FFO per share guidance for the second time in the year.

Including non-operating impairments and transactional income and expenses, the company’s FFO, on a reported basis, was 35 cents per share, up from 34 cents in the year-ago period.

Total revenue of $246.1 million during the reported quarter was up 8.7% year over year and surpassed the Zacks Consensus Estimate of $232 million.

Quarter in Detail

Gross occupancy in Kimco’s combined shopping center portfolio was 93.7% at the quarter-end, reflecting an uptick of 40 basis points (bps) from the prior-year quarter. In the U.S. portfolio, gross occupancy was 93.9%, up 60 bps from the year-ago period.

Same-property net operating income (:NOI) in the combined portfolio rose 4.0% year over year. This represented the 13th consecutive quarter of positive same-property NOI increase. Same-property NOI in the U.S. portfolio increased 4.2% over the same time period.

Leasing Transactions

During the said quarter, Kimco inked a total of 580 new leases, renewals and options in the combined portfolio, spanning 1.8 million square feet. Pro-rata U.S. leasing spreads in the U.S. portfolio increased 16.7% (cash-basis), including 28.0% for new leases, and 13.7% for renewals/options.

Acquisitions

During the quarter, Kimco bought 2 former joint venture (:JV) properties – The Marketplace at Factoria and Canyon Square Plaza – for $146.6 million. The Marketplace at Factoria is 94% leased and boasts a cluster of retail giants such as Target Corp. (TGT), Nordstrom Inc. (JWN) and Wal-Mart Stores Inc. (WMT). On the other hand, Canyon Square Plaza is a grocery-anchored center and occupied by North American grocery company, Albertsons.

Moreover, during the quarter, Kimco increased its stake in 3 existing institutional JVs – Kimco-UBS (‘KUBS’), Kimco Income Fund I (‘KIF I’) and Kimco Income REIT (‘KIR’) – for $133.3 million.

Notably, year to date, Kimco has acquired interests in 7 U.S. shopping centers and 2 parcels spanning a total of 1.5 million square feet for $367.5 million.

Divestitures

During second-quarter 2013, Kimco disposed 11 U.S. shopping centers for $71.6 million. Since the initiation of its asset-recycling program in 2010, the company has sold 121 properties spanning 11.9 million square feet, for $907.2 million. Of this, Kimco’s share was $551.3 million.

In addition, the company sold 9 assets of its Mexican shopping center portfolio for $274 million. Moreover, Kimco and its JV partner – American Industries – decided to sell their interests in several trusts that hold Mexican industrial properties portfolio. The assets proposed for sale to Terrafina – a Mexican REIT – were valued at about $600 million.

Liquidity

As of Jun 30, 2013, Kimco had $156.5 million (up from $141.9 million at year-end 2012) of cash and cash equivalents, with consolidated net debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortization) ratio of 5.8x (compared to 6.0x from the prior quarter).

In addition, Kimco has access to immediate liquidity of about $1.6 billion under its unsecured revolving credit facility worth $1.75 billion.

2013 Outlook

Kimco again raised the lower end of its adjusted FFO guidance range and now expects it in the range of $1.31–$1.33 (prior range being $1.29–$1.33).

Dividend Update

Kimco announced a quarterly cash dividend of 21 cents per share on its common stock. The dividend will be paid on Oct 15, 2013 to shareholders of record on Oct 3.

Our Take

Kimco came up with strong results, after posting a decent performance in the last quarter, on the back of strong fundamentals. The company, which has a premium portfolio of retail properties in upscale areas, is currently focusing on core business activities to tide over the volatility in the market. In addition, the continued strategic acquisitions and dispositions and easy access to capital promises huge upside potential, going forward. Moreover, the guidance increase boosts investors’ confidence on the stock and is thus encouraging.

Kimco currently carries 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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