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Kimco Posts In Line Q2 FFO, Revenues Top, Guides Same

Zacks Equity Research

Retail real estate investment trust (:REIT), Kimco Realty Corporation (KIM) reported second-quarter 2014 funds from operations (:FFO) per share of 34 cents, in line with the Zacks Consensus Estimate and a cent below the prior-year quarter figure.

The company experienced growth in revenues as well as occupancy levels in the quarter. Total revenue increased 14.6% year over year to $260.2 million, surpassing the Zacks Consensus Estimate of $240 million. However, the positives were offset by higher operating expenses, which rose 43.5% to around $252.5 million.

Quarter in Details

Pro-rata occupancy in both the U.S. and combined portfolios (including Canada and Latin America) moved up 110 basis points year-over-year to 95.0% and 94.8%, respectively.

Same-property net operating income (:NOI) in the U.S. portfolio climbed 2.5% from the year-ago period. This included a 40 basis point (bps) uptick due to inclusion of redevelopments. Moreover, combined same-property NOI, excluding the impact of foreign currency, rose 2.8% from the comparable prior-year period.
Kimco inked a total of 541 new leases, renewals and options in the combined portfolio, spanning 2.1 million square feet. Moreover, in the U.S. portfolio, pro-rata rental-rate leasing spreads moved north 9.7% with rental rates for new leases rising 13.3% and renewals/options advancing 8.2%.

Kimco exited the quarter with around $192.2 million of cash and cash equivalents, down from $268.9 million as of Mar 31, 2014.

Notable Portfolio Activity

Kimco accomplished the purchase of a 24-property retail portfolio, spanning 1.4 million square feet and positioned mainly in the Boston metropolitan market, for $270.0 million (including $120.5 million of mortgage debt). It also acquired the remaining 60.9% interest in the 12-property Kimco Income Fund I portfolio (KIF I) from its joint-venture partners for $408.0 million, including $38.2 million of mortgage debt.

On the other hand, Kimco sold its ownership stake in 15 U.S. properties (including eight properties held in JVs), covering 1.7 million square feet. The properties were sold for a gross sales price of $185.6 million (including $23.3 million of mortgage debt) and Kimco’s share of the proceeds came in at $121.5 million.

Kimco also closed the sale of four retail properties in Mexico for 1.1 billion Mexican pesos ($82.1 million) with its pro-rata share of the proceeds being around 688.1 million pesos ($53.3 million). (Read: Kimco Riding High on Portfolio Transformation Activity)

2014 Outlook Reaffirmed

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


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

Our Viewpoint

Going forward, solid demand for its properties, the portfolio-transformation initiatives, along with easy access to capital, promises considerable upside potential for Kimco. However, 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 DDR Corp. (DDR), General Growth Properties, Inc (GGP) and Regency Centers Corporation (REG). All these 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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