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Kimco Realty (KIM) Q4 FFO Meets Estimates, Revenues Beat

Zacks Equity Research

Kimco Realty Corp.’s KIM fourth-quarter 2018 funds from operations (FFO) as adjusted were 35 cents per share, in line with the Zacks Consensus Estimate. However, the reported tally was lower than the year-ago figure of 39 cents.

This retail REIT posted revenues of $284.2 million, which surpassed the Zacks Consensus Estimate of $278.3 million. The revenue figure, however, compares unfavorably with the year-ago number of $315.2 million.

Nevertheless, the company registered new leasing spreads of 12.2%. This marks the 20th straight quarter of increase in rental rate for new leases by more than 10% over the previous rent for the comparable space. Its small-shop occupancy reached a record high in the reported quarter.

Kimco Realty Corporation Price, Consensus and EPS Surprise
 

Kimco Realty Corporation Price, Consensus and EPS Surprise | Kimco Realty Corporation Quote

For 2018, the company reported FFO as adjusted per share of $1.45, down from $1.52 in the prior year. Notably, the company experienced a 3.0% decrease in revenues to $1.16 billion in 2018.

Quarter in Detail

At the end of the fourth quarter, pro-rata occupancy was 95.8%, flat sequentially and marking a contraction of 20 basis points (bps) year over year. The decline reflects the impact of bankruptcies of Toys R Us and Sears.

Pro-rata anchor occupancy shrunk 20 basis points sequentially and 70 bps year over year to 97.4%, reflecting the above-mentioned bankruptcies. However, pro-rata small-shop occupancy advanced 30 bps sequentially and 150 basis points year over year to 91.1%.

Same-property net operating income (NOI) grew 2.6% year over year. Pro-rata rental-rate leasing spreads increased 7.0%, with rental rates for new leases and renewals/options climbing 12.2% and 5.6%, respectively.

Balance-Sheet Position

Kimco exited 2018 with cash and cash equivalents of around $143.6 million, down from $238.5 million recorded at the end of 2017. The company ended the year with $100 million outstanding on its $2.25 billion revolving credit facility. It has no debt maturing in 2019 in its consolidated portfolio.

Portfolio Activity

During the reported quarter, Kimco sold 16 properties, along with two land parcels, spanning 1.9 million square feet. The dispositions were made for $357.1 million, of which the company’s share amounted to $228.4 million.

Guidance

Kimco projects 2019 FFO as adjusted per share of $1.44-$1.48. The Zacks Consensus Estimate for the same is currently pinned at $1.45.

This is based on the same-property NOI (excluding redevelopments) growth projections of 1.5- 2.5%. Moreover, total redevelopment and development investment projection is expected to be $275-$350 million.

Dividend Update

Kimco’s board of directors announced a quarterly cash dividend of 28 cents per share. This will be paid on Apr 15 to shareholders of record as of Apr 2, 2019.

Our Viewpoint

Kimco enjoys significant portfolio diversification with respect to geography and tenants. The company is on track with the 2020 Vision strategy that envisages the ownership of high-quality assets concentrated in major metro markets, which offer several growth levers. Accelerating its portfolio-transformation initiatives, Kimco reported fourth-quarter and 2018 disposition deals worth $357.1 million and $1.1 billion, respectively.

Although these disposition efforts are encouraging for the long term, it will likely have a dilutive impact on near-term earnings. Moreover, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers are expected to dampen the company’s performance.

Kimco currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to earnings releases of other REITs like Simon Property Group SPG, AvalonBay Communities, Inc. AVB, and Apartment Investment and Management Company AIV. While Simon Property will report earnings on Feb 1, AvalonBay, and Apartment Investment and Management Company are slated to release their quarterly numbers on Feb 4.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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