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Kimco Realty Corporation -- Moody's affirms the Baa1 ratings of Kimco Realty and Weingarten Realty following their merger announcement, outlooks remain stable

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Rating Action: Moody's affirms the Baa1 ratings of Kimco Realty and Weingarten Realty following their merger announcement, outlooks remain stableGlobal Credit Research - 20 Apr 2021New York, April 20, 2021 -- Moody's Investors Service, ("Moody's") has affirmed all ratings of Kimco Realty Corporation (Kimco) following the announcement of the proposed merger with Weingarten Realty Investors (Weingarten Realty) where Kimco will be the surviving entity. All ratings of Weingarten Realty have also been affirmed. The rating outlooks for both REITs are stableThe rating affirmations reflect the portfolio strengths of the combined platform, stable operating cash flows from a substantially grocery anchored portfolio, and good liquidity. The stable rating outlook for Kimco Realty reflects our that the REIT's leverage and coverage metrics will improve in the next 4-6 quarters. Weingarten Realty's stable outlook reflects the expectation that the transaction will be closed.Affirmations:..Issuer: Kimco Realty Corporation....Pref. Stock Preferred Stock, Affirmed Baa2....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Affirmations:..Issuer: Weingarten Realty Investors....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1....Subordinate Medium-Term Note Program, Affirmed (P)Baa2....Preferred Stock, Affirmed Baa2....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1....Preferred Stock Shelf, Affirmed (P)Baa2....Senior Unsecured Shelf, Affirmed (P)Baa1....Subordinate Shelf, Affirmed (P)Baa2Outlook Actions:..Issuer: Kimco Realty Corporation....Outlook, Remains StableOutlook Actions:..Issuer: Weingarten Realty Investors....Outlook, Remains StableRATINGS RATIONALEOn April 15, 2021, Kimco and Weingarten Realty announced that they had entered into a definitive merger agreement whereby Weingarten Realty will merge into Kimco in a transaction valued at $5.9 billion. The shareholders of Weingarten Realty will receive 1.408 shares of Kimco and $2.89 in cash for each Weingarten Realty common share if the transaction is completed as proposed. The boards of both entities have approved the merger and the deal is expected to close in the second half of 2021 following other closing conditions including approvals from shareholders of both entities.The merger will improve Kimco's portfolio quality and diversity by increasing the proportion of high-quality grocery anchored shopping centers and expanding Kimco's presence in certain Southeast markets with favorable demographic trends. Weingarten Realty's annualized rental revenue (ABR) per square foot and grocer sales per square foot ares higher than most of its shopping center peers, including Kimco. However, in 2020, Weingarten Realty's same-store NOI declined by 10.4% relative to the 8.0% decline reported by Kimco Realty. The merger will also increase the total portfolio's geographic diversity as Kimco's exposure to some of Weingarten Realty's key and strong markets of Houston, Miami, Orlando and Phoenix, about 40% of Weingarten Realty's ABR, is more modest at close to 17% of ABR.During the pandemic, operating metrics such as occupancy rates, rent spreads and same-store NOI declined for the two REITs. The outlook for the next 2-4 quarters is, however, favorable for both given their portfolio characteristics including location, tenant mix and a manageable lease expiration schedule. Kimco and Weingarten Realty have also reported considerable improvement in cash rent collections of 92% and 94% respectively, well above the 80% range reported for Q2 2020.The transaction, if completed as proposed, will modestly improve Kimco's aggregate leverage metrics due to Weingarten Realty's lower pre-transaction leverage and modest share of cash consideration paid to Weingarten Realty's shareholders. Kimco's net debt + preferred to EBITDA will remain elevated at about 7.5x and fixed charge coverage will be modest in the low- mid 3.0x range. We expect both metrics to improve over the next 4-6 quarters with income growth and paydown of leverage from continued monetization of Kimco's investment in the grocer, Albertsons Companies Inc.At YE 2020, Kimco Realty had $293 million of cash on balance sheet and full availability on its $2.0 billion revolving credit facility which matures in March 2024, not including the two six-month extension options. Both REITs also own large, high quality, unencumbered portfolios, and Kimco has strong access to capital as evidenced by the REIT's two unsecured debt issuances, $900 million raised, in 2020. We expect near term capital needs for the combined entity to be modest with $192 million of debt maturing in 2021 and about $200 million of remaining spend for the ongoing development and redevelopment projects.The stable rating outlook for Kimco Realty incorporates the expectation that the REIT's net debt + preferred to EBITDA and fixed charge coverage metrics will improve over the next 12-18 months with recovery in earnings and paydown of debt. Weingarten Realty's stable outlook reflects our expectation that the transaction will be closed.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade of Kimco Realty's ratings would require net debt + preferred to EBITDA close to 6.0x, fixed charge coverage above 4.0x and same-store NOI of 2.5% of higher, all on a consistent basis. The ratings could be downgraded if net debt + preferred to EBITDA stays above 7.0x in 2022, fixed charge coverage remains close to 3.0x or if the unencumbered asset ratio approaches 80%.Upward rating movement is unlikely for Weingarten Realty giving the pending closing of the merger. If Kimco's acquisition of Weingarten Realty does not occur and Weingarten Realty's portfolio quality is found to be weaker than expected, downward rating pressure on Weingarten Realty's ratings could result.Kimco Realty Corporation [NYSE: KIM] is one of the largest Moody's rated REITs in the community and neighborhood shopping center property sector. As of December 31, 2020, Kimco had gross assets of $14.3 billion and an interest in 400 US shopping centers and mixed-use assets with 70 million square feet of gross leasable area including unconsolidated properties on a pro-rata basis and properties under development.Weingarten Realty Investors (NYSE: WRI) is a REIT that owns, manages and develops retail shopping centers. At December 31, 2020, the company owned or operated under long-term leases in 159 properties which are located in 15 states, totaling approximately 30 million square feet. As of December 31, 2020, the REIT reported gross assets of $5.1 billion and total shareholders' equity of $1.6 billion.The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Ranjini Venkatesan Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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