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Kimco Realty's (KIM) Rating Reaffirmed at BBB+ by Fitch

Zacks Equity Research

Kimco Realty Corporation’s KIM issuer default rating was recently reiterated at BBB+ by Fitch Ratings. The rating agency also maintained its stable outlook for the company.

The credit action is backed by Kimco’s diversified portfolio of premium properties in upscale markets. The company has significant presence across the New York-Washington D.C. corridor that accounts for nearly 30% of annualized base rent (“ABR”). Further, its tenant roster includes a mix of well-capitalized national, regional and local retailers. Top tenants like TJX Companies TJX, Home Depot and Ahold Delhhaize have fared relatively well.

Fitch is of the view that a quality portfolio and well-diversified tenant base has enabled Kimco to witness impressive organic growth as reflected in the year-over year improvement in its same-store net operating income (SSNOI). Furthermore, a well-staggered leasing profile for the company’s portfolio will provide stable cash flows in the upcoming period.

In addition, the company’s efforts to reduce leverage levels also look encouraging. In line with this, proceeds from non-core asset sale have been used for debt reduction and to fund the company’s development and redevelopment pipeline. In 2018, it disposed $1.1 billion of assets with nearly $913.9 million in sale proceeds. 

Fitch noted that monetization of Kimco’s investment in grocer Albertsons will provide it with nearly $400 million in cash proceeds that can be used to further reduce debt in the upcoming years. The reiteration also reflects Kimco’s convenient access to the debt markets.

Additionally, the company is investing in development and redevelopment projects that will be accretive for long-term growth. Fitch expects Kimco’s $900-million projects to be completed and stabilized through 2021. As of Dec 31, 2018, two-third of Kimco’s development pipeline was preleased, highlighting progress on stabilization and lower risks. Notably, near-term capital needs of $400 million for development/redevelopment projects are manageable, representing 3% of gross assets as of Dec 31, 2018.

The reiteration of this credit rating to Kimco indicates the company’s creditworthiness in the market and is likely to enhance investors' confidence in the stock. In fact, such moves provide companies an opportunity to enjoy favorable costs on debts and solid access to capital, and are, therefore, encouraging. 

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

However, broader brick-and-mortar retail industry concerns have impacted share prices of retail REITs, including Macerich Company MAC, Taubman Centers, Inc. TCO and Kimco. This remains a major bottleneck for the company. In fact, shares of Kimco have declined 1.3% over the past month.

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