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Kimco Realty's (KIM) Q2 FFO as Expected, Revenues Beat

Zacks Equity Research

Kimco Realty Corp.’s KIM second-quarter 2019 funds from operations (FFO) as adjusted came in at 36 cents per share, in line with the Zacks Consensus Estimate. The reported tally is a penny less than the year-ago quarter’s FFO as adjusted of 37 cents per share.

Results reflect increase in portfolio occupancy matching an all-time high level, solid leasing spreads on new lease and positive same-property net operating income (NOI). Particularly, the company registered new leasing spreads of 37%. This marks the 22nd straight quarter in which spreads on new leases improved in double digits. However, asset sales keep dampening its profitability.

The retail REIT generated revenues of $284.9 million, surpassing the Zacks Consensus Estimate of $282.5 million. The revenue figure, however, compares unfavorably with the year-ago number of $293.4 million.

Quarter in Detail

At the end of the second quarter, pro-rata occupancy was 96.2%, marking an expansion of 20 basis points (bps), both sequentially and year on year. Pro-rata anchor occupancy ended the quarter at 98.2%, denoting 40-basis point sequential growth and a 10-basis point expansion, year over year.

Pro-rata small shop occupancy ended the second quarter at 90.5%. While this marked a year-over-year increase of 30 bps, sequentially the figure shrunk 10 bps.

Pro-rata rental-rate leasing spreads increased 7.9%, with rental rates for new leases and renewals/options climbing 37% and 4.1%, respectively.

Same-property net operating income (NOI) grew 2.5% year over year, backed by a 3% increase in minimum rent.

Balance-Sheet Position

Kimco exited second-quarter 2019 with cash and cash equivalents of around $114 million, down from the $143.6 million recorded at the end of 2018.

Portfolio Activity

During the reported quarter, Kimco sold three properties and one land parcel, aggregating 875,000 square feet. The dispositions were made for $103.7 million, of which the company’s share amounted to $65.8 million.

Guidance

Kimco affirmed its 2019 FFO projections, and estimates the company’s FFO as adjusted per share in the $1.44-$1.48 range. The Zacks Consensus Estimate for the same is currently pinned at $1.46.

The company updated its operational assumption for same-property NOI and now forecasts it, excluding redevelopments, in the range of 2-2.7% compared with the prior outlook of 1.75-2.50%.

However, the company kept its net disposition guidance unchanged at $200-$300 million, with a blended disposition cap rates of 7.25-7.75%, and the combined redevelopment and development investment projection unaffected in the band of $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 Oct 15, to shareholders of record as of Oct 2, 2019.

Our Viewpoint

Kimco is on track with its 2020 Vision that envisages the ownership of high-quality assets, concentrated in major metro markets which offer several growth drivers. Amid transformation in the retail landscape, the company remains well poised to navigate through mall traffic blues, with focus on service and experiential tenants, and omni-channel players.

Backed by its concerted efforts to enhance portfolio quality, the company has been able to increase pro-rata occupancy to a record-tying 96.2% in the April-June quarter, which is encouraging. Also, improved spreads on new leases reflect demand for its properties.

Simultaneously, the company is making significant disposition of assets and year to date, the company has disposed 12 properties and one land parcel, for a gross price of $226.1 million, which aggregated 1.9 million square feet of space. The company’s share of the sales price was $161.1 million.

Furthermore, with $145.3 million worth of properties currently under contract, Kimco is well on track with its planned dispositions for the year. The company’s share of the sales would be worth $86.6 million. These dispositions are a strategic fit for long-term growth, though the company cannot bypass the dilutive impact on near-term earnings.

Kimco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kimco Realty Corporation Price, Consensus and EPS Surprise
 

Kimco Realty Corporation Price, Consensus and EPS Surprise

Kimco Realty Corporation price-consensus-eps-surprise-chart | Kimco Realty Corporation Quote

We now look forward to the earnings releases of other retail REITs like Simon Property Group, Inc. SPG, Federal Realty Investment Trust FRT and Regency Centers Corporation REG. While Simon Property is slated to report second-quarter earnings on Jul 31, Federal Realty and Regency Centers are scheduled to release the same on Aug 1.

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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