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Kimco Realty (KIM) Initiates ATM Share Offering Worth $500M

Zacks Equity Research

Kimco Realty Corp. KIM announced that it has established a new at-the-market (ATM) share offering program, through which the company will sell shares of its common stock with par value of 1 cent per share. The company expects aggregate gross sales price of up to $500 million.

The common stock sale will be made in negotiated transactions through sale agents like Morgan Stanley & Co. LLC, Barclays Capital Inc. and BB&T Capital Markets, among others. Further, the program replaces the retail REIT’s previous ATM offering program, per which the company sold shares with an aggregate offering price of nearly $288.1 million. Accordingly, shares of common stock that remains unsold under thisprogram will be included in the new $500-million ATM program.

Net proceeds from the program will be used for general corporate purposes, including capital investments in potential accretive acquisitions, funding of development and redevelopment costs and redemption of depositary shares. Further, the company aims to reduce outstanding indebtedness, including borrowings under its revolving credit facility.

In fact, Kimco has a revolving credit facility that matures in March 2021. It carries an interest rate of LIBOR plus 0.875%. As of the end of second-quarter 2019, $135 million was outstanding under this revolving credit facility.

The company also intends to invest any remaining balance of the net proceeds in short-term interest-bearing investment grade instruments.

Notably, execution of sale of common shares through an ATM program is particularly useful during periods of high-market volatility as it offers the issuer flexibility and full discretion to sell shares at desirable price and time. In fact, this will also enable Kimco to capitalize on periods of high volatility and benefit from any favorable news events.

While the company has more than $2.2 billion in immediate liquidity, the ATM program will further boost its financial flexibility as well as help meet financial obligations efficiently. Moreover, it provides ample scope for deploying capital in accretive buyout opportunities, thereby providing scope for long-term growth. 

Kimco currently carries a Zacks Rank #3 (Hold). In the past three months, shares of the company have outperformed the industry. The stock has gained 16.2%, compared with the industry’s rally of 7.8% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While prudent capital-management efforts are commendable, the retail apocalypse in the retail sector is a concern for Kimco. Specifically, the onslaught of e-commerce on physical retailers has made them rationalize their store fleet, while others unable to contend with online giants are filing bankruptcies.  In fact, the recent bankruptcy filing by Forever 21 is a testament of the prevailing turbulent conditions affecting the sector.

Thanks to widespread store closures and retailer bankruptcies, retail real estate landlords, including Kimco, Taubman Centers TCO, Macerich Company MAC and Federal Realty Investment Trust FRT, among others, have been witnessing a challenging environment.

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