Kimco Q4 FFO in Line; Guides Same

Zacks

Retail real estate investment trust (:REIT), Kimco Realty Corporation (KIM) reported fourth-quarter 2013 adjusted funds from operations (:FFO) per share of 33 cents, in line with the Zacks Consensus Estimate and the year-ago figure.

The flat results were primarily due to the shedding of American Industries industrial portfolio investments and divestiture of InTown Suites extended stay portfolio in 2013. Including non-recurring items, the company’s FFO, on a reported basis, was 33 cents per share, up 6.5% from 31 cents in the year-ago period.

Total revenue of $247.6 million during the reported quarter was up 8.9% year over year and surpassed the Zacks Consensus Estimate of $238 million.

For full-year 2013, Kimco reported adjusted FFO per share of $1.33 on revenues of $946.7 million. Results were substantially higher than the prior-year adjusted FFO per share of $1.26 on revenues of $874.4 million. Additionally, reported FFO for 2013 was $1.35 per share, up from $1.25 per share in 2012.

Quarter in Details

In the U.S. Shopping Center Portfolio, pro-rata occupancy was 94.9%, 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 70 bps from the prior-year quarter.

Same-property net operating income (:NOI) in the U.S. portfolio rose 4.1% year over year. Same-property NOI in the combined portfolio rose 3.4% over the same time period. This represented the 15th consecutive quarter of positive same-property NOI increase in combined portfolio.

Leasing Activities

During the said quarter, Kimco inked a total of 618 new leases, renewals and options in the combined portfolio, spanning 2.3 million square feet. Moreover, pro-rata U.S. cash-basis leasing spreads moved north 5.9% with new leases increasing 8.2% and renewals/options climbing 5.2%.

Acquisitions & Redevelopments

During the fourth quarter, Kimco bought 14 assets, spanning over 1.5 million square feet, for $247.5 million. For full-year 2013, Kimco bought 23 retail properties, totaling 3.1 million square feet, for $640.3 million. Also in 2013, Kimco bought additional equity interests and raised its ownership in three institutional joint ventures (JVs) totaling $153.0 million.

Following the end of 2013, Kimco purchased the remaining 89% ownership stake in 3 grocery-anchored properties in the greater Baltimore area from an institutional JV for $93.2 million.

Apart from these, during fourth-quarter 2013, Kimco finished 7 redevelopment projects totaling around $15 million. The company included five projects in its pipeline with a gross cost of about $16 million. Altogether, Kimco added 35 projects in its active redevelopment pipeline for a gross cost of approximately $109 million in 2013. This increased its total redevelopment pipeline to 262 projects, having a gross cost of around $778 million.

Dispositions

During fourth-quarter 2013, Kimco offloaded its ownership stake in 14 assets in the U.S. for a gross sales price of $192.3 million. In total in 2013, Kimco divested 35 shopping centers for a gross sales price of $349.7 million. Of the generated proceeds, Kimco’s share was $194.0 million.  

Furthermore, during fourth-quarter 2013, Kimco vended Latin America-based 5 mortgage-free assets and one outparcel. With these divestitures, that included the sale of stake in 2 Brazilian assets, Kimco exited the Brazil market. Of the generated proceeds, Kimco’s share was $29.9 million. In total, Kimco concluded the disposition of 112 Latin American properties for a gross sales price of $1.1 billion in 2013. Of the generated proceeds, Kimco’s share was $360.3 million.

Liquidity

As of Dec 31, 2013, Kimco had $148.8 million of cash and cash equivalents, up from $141.9 million as of Dec 31, 2012.

2014 Outlook

Kimco reiterated its guidance for 2014 adjusted FFO per share. The company expects it to range between $1.36 and $1.40. This is in line with the Zacks Consensus Estimate for the same of $1.39.

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 Apr 15, 2014, to shareholders of record on Apr 3.

Our Viewpoint

We are encouraged with the decent results at Kimco. The company’s successful efforts to improve its core portfolio through the divestiture of non-strategic assets and acquisition of high-quality properties are commendable. In addition, a significant redevelopment pipeline is encouraging as the properties are positioned in high-income, high-growth areas. Moreover, the high credit tenant retention limits the downside risk and provides a long-term steady source of income for the company.

Yet, although the portfolio restructuring promises bright prospects, high disposition activity tends to dilute earnings in the near term and significant redevelopment pipeline increases operational risk. Also, rise in internet sales that adversely affect the demand for retail space remain our concerns.

Kimco currently carries a Zacks Rank #3 (Hold). We now look forward to the other retail REITs, Regency Centers Corporation (REG), DDR Corp. (DDR) and Taubman Centers, Inc. (TCO) that are scheduled to release earnings next week.

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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