Kimco Realty Corp.’s KIM investment in Albertsons Companies ACI is paying off as the retail REIT recently received $71.4 million from its investments in Albertsons upon closing of the company’s initial public offering. The proceeds are primarily planned for use in debt reduction.
During the second quarter, a pre-tax gain of $55-$65 million is likely to be recognized by Kimco from the sale of Albertsons’ shares during the IPO. This gain is over and above the previously-announced $125-$135 million gain the company is set to recognize from Albertsons common stock repurchase from present shareholders in tandem with its recent sale of convertible preferred stock.
As liquidity and balance-sheet management efforts have gained much importance amid the coronavirus pandemic and the resultant impact on the economy and financial markets, the move to monetize Kimco’s Albertsons investment seems a strategic fit.
The retail REIT’s remaining stake in Albertsons is valued at $628.2 million based on the residual 39.8 million shares of Albertsons common stock it holds. A gain of $524.7 million will be recognized by Kimco on the mark-to-market of its remaining investment in Albertsons, which is based on the Jun 30 closing share price. However, the gains won’t affect Kimco’s funds from operations (FFO).
For the past years, Kimco has been engaged in making strategic investments. The company has invested $207 million in aggregate since its initial investment in Albertsons in 2006. It has realized a total of roughly $569 million in proceeds.
Notably, retail REITs, including Kimco, Simon Property Group SPG, Macerich MAC and several others, which have already been battling store closures and bankruptcy issues, have been feeling the brunt amid the pandemic because consumers are avoiding gathering in large public spaces and several stores are closed or working with reduced hours.
Nevertheless, in these uncertain times, having a grocery component has been saving the grace of retail REITs, and Kimco has a high-quality, mixed-use portfolio concentrated in the top U.S. markets and more than 77% of its annual base rent comes from grocery-anchored centers.
Moreover, immediate monetization from the IPO, along with continued investment in Albertsons, boosts balance-sheet strength and makes Kimco well poised to bank on retail real estate-related opportunities arising from the coronavirus pandemic-related market disruptions. Last month, the company announced eyeing an opportunity to sponsor a separate investment vehicle by raising private capital. It expects to invest around $50-$100 million in the separate investment vehicle upon the closing of the private capital raise.
Currently, Kimco carries a Zacks Rank #3 (Hold). However, shares of this retail REIT have depreciated 37.7%, so far in the year, wider than the 25% decline recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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