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Kimco Realty Corporation’s KIM senior unsecured debt and preferred stock ratings have been affirmed at Baa1 and Baa2, respectively, by Moody’s Investors Service — the rating division of Moody’s Corporation MCO. Further, the rating agency has maintained a stable outlook for Kimco.
The reiteration reflects the shopping real estate investment trust’s (REITs) robust portfolio of shopping-center assets, solid leverage ratios and a judicial portfolio-repositioning strategy.
Rationale Behind Ratings and Outlook Affirmation
Despite retailer bankruptcies and store closures, the company has been able to maintain impressive leasing figures. In fact, over the last four quarters, Kimco's portfolio lease rate remained healthy at 96%, while average releasing spreads sustained at 10.2%.
Further, its largest tenant, TJX Companies TJX, accounts for only 3.6% of the company’s annual revenue stream (“ABR”). This reflects the company’s well-diversified tenant mix. Also, Kimco’s grocery-anchored centers generate 75% of its ABR. Hence, the rating agency views these factors to be favorable for Kimco.
Along with maintaining solid operating metrics, Kimco has also made considerable progress with its strategic 2020 vision to optimize the company’s portfolio. In sync with these efforts, it has disposed 72 assets for $1.15 billion, over the last year. The assets sales reduced its ownership in non-core markets and joint ventures. Simultaneously, Kimco actively invested nearly $600 million in development and redevelopment projects, with additional $700 million in acquisition of shopping centers and land parcels.
Also, the rating agency is positive on the company’s stable leverage metrics and strong liquidity profile over the past few years. While near-term capital needs of $334 million for development/redevelopment projects are manageable, the company has a significant kitty of unused credit facility and pending dispositions proceeds aggregating to $2.25 billion. Encouragingly, fixed-charge coverage of 3.4x in 1H18 indicates larger share of preferred stock and long-term issues in its capital structure.
Nonetheless, retail REIT’s potency is getting hurt by a competitive retail backdrop and increasing market share of e-commerce. This has led to retailers rationalizing their store fleet and filing for bankruptcy. Consequently, companies such as Kimco and Simon Property Group SPG are facing the heat and witnessing lower mall traffic.
In fact, per Moody’s, announced-store closures account for 1.2% of Kimco’s ABR and the time taken to recapture the vacant blocs is expected to impact the company’s same-store net operating income (NOI) in the second half of 2018.
Also, in line with Moody’s belief of Kimco’s continued robust operating performance and a prudent capital strategy, it has maintained a stable rating outlook.
What May Lead to Change in Ratings
Moody’s believes an upward rating revision is likely if the company’s net debt and preferred to EBITDA approaches 5.5x, fixed-charge coverage climb above 4.0x and unencumbered asset ratio is near 90%, all on a consistent basis.
However, if the net debt and preferred to EBITDA ratio is near7x on a consistent basis, fixed-charge coverage falls below 3.0x, or debt and preferred to gross assets approaches 50%, the company could witness downward rating pressure.
Zacks Rank and Price Performance
Kimco carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Also, shares of the company have outperformed its industry over the past six months. In fact, its shares have rallied 10.1%, against the industry’s decline of 3.2% during the same time period.
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Moody's Corporation (MCO) : Free Stock Analysis Report
The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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