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What's in the Cards for Kimco (KIM) This Earnings Season?

Zacks Equity Research
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Telecom ETFs in Focus Post Q3 Results

Verizon and AT&T recently reported third-quarter results, putting focus on telecom ETFs.

Kimco Realty Corporation KIM is slated to report third-quarter 2018 results on Oct 25, before the market opens.

In the last reported quarter, this New Hyde Park, NY-based retail real estate investment trust (REIT) delivered a positive surprise of 2.78% in terms of funds from operations (FFO) per share.

Over the trailing four quarters, Kimco beat estimates in three occasions and posted in-line result in the other, recording an average beat of 2.07%. The graph below depicts this surprise history:

Kimco Realty Corporation Price and EPS Surprise
 

Kimco Realty Corporation Price and EPS Surprise | Kimco Realty Corporation Quote

The Zacks Consensus Estimate for the third-quarter FFO per share is currently pegged at 36 cents.

Let’s see how things are shaping up for this announcement.

Factors at Play

Kimco is on track with its 2020 Vision that envisages the ownership of premium assets in major metro markets in the United States, as well as a reduction of its non-core portfolio. The company is aimed at improving its portfolio mix with development and redevelopment efforts.

In fact, amid transformation in the retail landscape, Kimco is focusing on service, and experiential tenants and omni-channel players. Additionally, the company is aiming to expand its small-shops portfolio. These shops basically comprise service-based industries, such as restaurants, salons and spas, personal fitness and medical practices. The shops enjoy frequent customer traffic and are Internet resistant. Amid limited new supply and favorable demographics, this diversification will likely help Kimco limit its operating and leasing risks. As such, amid upbeat consumer confidence and improving economy, the company may experience high occupancy and healthy leasing spreads.

Furthermore, Kimco is engaged in the execution of strategic measures to boost its capital structure, and enhance the company’s growth profile and tax efficiency as well. In the Sep-end quarter, the company is expected to have maintained a strong balance sheet.

Earlier this October, Kimco provided an update of its Q3 transaction activity and reported that the company sold 10 shopping centers, along with two lands, spanning 1.3 million square feet of space. With these dispositions, the company’s third-quarter 2018 sales volume has surpassed $150 million, while for the first nine months of the year, the same reached $700 million.

These disposals were in line with the company’s projected range of blended cap rate of 7.50-8.00%. Management noted that a favorable disposition environment, courtesy easy availability of capital and debt financing to buyers, supported Kimco’s large-scale dispositions.

Nevertheless, in connection to its strategic efforts, Kimco has been making significant disposition of the company’s assets. It disposed 48 shopping centers and six land parcels, aggregating 6.3 million square feet of area, in the first nine months of the year, for $712.9 million, of which, Kimco’s share of the sales price was $685.5 million. While such efforts are encouraging for the long term, the dilutive effect on earnings from high disposition activity cannot be averted in the near term.

In fact, the Zacks Consensus Estimate for third-quarter revenues is currently pinned at $281.7 million — reflecting a 3.2% estimated decline from the prior-year period. The Zacks Consensus Estimate of FFO per share of 36 cents for the quarter also indicates a year-over-year slip of 5.3%.

In addition, store closures and retailer bankruptcies have been prevalent in the retail real estate space market. Although retail landlords are putting in immense efforts to boost productivity of retail assets by trying to grab attention from new and productive tenants, and disposing the non-productive ones, the recent data from Reis shows that the regional mall vacancy rate jumped to 9.1% in the third quarter, from 8.6% in the prior quarter and 8.3% a year ago. For Neighborhood and Community malls, the vacancy rate was 10.2% in the quarter under review, unchanged sequentially, and up from 10.0% in Q3 2017.

In addition to the above, Kimco’s activities during the Jul-Sep quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share of 36 cents for the to-be-reported quarter remained unchanged over the past month.

Here is what our quantitative model predicts:

Kimco has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: The Earnings ESP for Kimco is +3.60%.

Zacks Rank: Kimco carries a Zacks Rank of 3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Regency Centers Corporation REG, scheduled to release earnings on Oct 25, has an Earnings ESP of +0.21% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Welltower Inc. WELL, slated to release third-quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

Public Storage PSA, scheduled to report its quarterly numbers on Oct 30, has an Earnings ESP of +0.27% and a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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