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Kimco Provides Q3 Transaction Update

Zacks Equity Research

One of the leading retail real estate investment trusts (:REIT), Kimco Realty Corp. (KIM), disclosed its third-quarter 2013 transaction activities. During the quarter, the company acquired assets worth $37.6 million, while its divestitures amounted to about $854.2 million.

Q3 Transactions in Details

During the third-quarter, Kimco bought two U.S. assets – Village at Highlands Ranch II and ElmsfordCenter – in Colorado and New York, respectively. Littleton-based Village at Highlands Ranch II is part of an interrelated retail complex that is occupied by the area’s dominant grocer, King Soopers – a supermarket brand of The Kroger Co. (KR). The mortgage-free retail center positioned in a prosperous Denver suburb was bought for $14.6 million.

On the other hand, Elmsford Center that is located in the New York metro suburb was acquired for $23 million. The power center is anchored by Bed Bath & Beyond Inc. (BBBY) and Sports Authority. Both the assets are positioned in upscale communities, with a three-mile average household income of $121,000 and $123,000, respectively.

In addition, Kimco and its JV partner – American Industries – divested their stake in 84 Mexican industrial assets for $603.5 million. The properties were sold to Terrafina – a Mexican REIT. Moreover, Kimco offloaded a 4-property Mexican shopping center portfolio to its local operating partner, Planigrupo, for $84 million (1.1 billion Mexican pesos).

In addition, Kimco sold its 43% stake in a Guadalajara, Mexico-based asset Centro Sur shopping center for $41 million (523 million Mexican pesos). Also, the company divested its 50% stake in a Chile-based 9-property shopping center portfolio to its local operating partner for $50.2 million (25.3 billion Chilean pesos). Additionally, Kimco had vended 8 assets of its U.S. shopping center portfolio for $75.5 million.

Subsequent to Quarter-end Events

Following the third quarter-end, Kimco bought 2 shopping centers – Northridge Shopping Center (Arvada, Colo.) and Five Forks Crossing (Lilburn, Ga.) – for a total price $29.6 million. Notably, since 2010, Kimco has acquired 70 properties in highly affluent areas of the U.S. for $1.7 billion.

Also, Kimco disposed its 31.7% interest in a Las Palmas, Texas-based asset to its joint venture partners for $99.9 million. With this, since the initiation of the U.S. non-strategic retail disposition program in 2010, Kimco has sold 130 properties for $1.1 billion. Of this, Kimco’s share of the proceeds was $615.1 million.

Our Take

Kimco’s successful efforts to improve its core portfolio through the divestiture of non-strategic assets and acquisition of high-quality properties are commendable. This augurs well for its earnings going forward as the properties are positioned mostly 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.

Kimco is scheduled to release third-quarter 2013 results on Oct 29, 2013, after the closing bell. The Zacks Consensus Estimate for third-quarter funds from operations (:FFO) is currently pegged at 33 cents per share, representing a year-over-year increase of 6.24%.

Kimco currently carries a Zacks Rank #2 (Buy). Another retail REIT, Regency Centers Corporation (REG) is performing well and has the same rank as Kimco.

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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