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Kimco Realty Prices $425M Notes, To Redeem Preferred Stock

Zacks Equity Research

Kimco Realty Corp. KIM recently announced the pricing of its public offering of 3.70% notes with aggregate principal amount of $350 million aggregate principal amount. The notes carry an effective yield of 3.765% and are slated to mature on Oct 1, 2049. Settlement of the offering, anticipated to occur on Aug 29, 2019, is subject to the fulfillment of customary closing terms.

Notably, net proceeds of the offering, along with the company’s borrowings under its revolving credit facility, will be used to fund the redemption of its class I and class K cumulative redeemable preferred stock with an aggregate liquidation value of $175 million each.

On account of this redemption, the company will recognize a non-cash charge of approximately $11.4 million equating to 3 cents per share in third-quarter 2019. This will impact net income and NAREIT funds from operations (FFO) per share by the same amount. Nonetheless, FFO as adjusted per share will remain unaffected.

Pending such redemption, Kimco expects to use net proceeds for general corporate purposes, including reduction of outstanding balances under the company’s revolving credit facility. Notably, as of Jun 30, 2019, $135 million remained outstanding.

By paying down its debt obligations and credit facility, this offering is anticipated to provide flexibility to the company. In addition, it highlights Kimco’s focus to address its financial obligations in an efficient way.

These efforts will likely boost Kimco’s balance sheet and substantial liquidity position. In fact, it maintains a strong liquidity profile with more than $2.2 billion of immediate liquidity. Further, the company’s weighted average debt maturity profile now stands at 9.9 years.

Shares of this Zacks Rank #3 (Hold) company have gained 2.3% over the past three months as against the industry’s fall of 3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nonetheless, softness in the retail market is expected to torment the company’s performance. Particularly, the latest penetration of online retailers into the retail business has emerged as a concern for this REIT. 

In fact, the shift in retail shopping to Internet sales is affecting retail tenants’ sales, leading to retailers reconsidering their footprint and opting for store closures, thereby resulting in lesser demand for retail real estate space. This is adversely impacting retail landlords like Kimco, Regency Centers Corporation REG, Federal Realty Investment Trust FRT and Taubman Centers, Inc. TCO.

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

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