What's in the Cards for Kimco (KIM) This Earnings Season?
Kimco Realty Corporation KIM is slated to report third-quarter 2023 results on Oct 26, before the opening bell. While the company’s quarterly results are likely to display year-over-year revenue growth, funds from operations (FFO) per share are expected to exhibit a decline.
In the last reported quarter, this Jericho, NY-based retail real estate investment trust (REIT) delivered FFO per share of 39 cents, in line with the Zacks Consensus Estimate. The quarterly results reflected better-than-anticipated revenues, aided by rental rate growth and a rise in occupancy levels.
Over the preceding four quarters, Kimco’s FFO per share surpassed the Zacks Consensus Estimate once, met on two occasions and missed in the remaining one, the average beat being 0.64%. This is depicted in the graph below:
Kimco Realty Corporation Price and EPS Surprise
Kimco Realty Corporation price-eps-surprise | Kimco Realty Corporation Quote
Factors at Play
U.S. Retail Market in Q3
Per a report from CBRE Group CBRE, retail space demand in the third quarter increased, with net absorption rising 34% quarter over quarter to 9.8 million square feet. Specifically, street retail, freestanding & other segment observed the most net absorption of 4.3 million square feet. While net absorption for neighborhood, community and strip centers fell 29% quarter over quarter, power center and lifestyle and mall segments turned positive after recording negative absorption in the second quarter.
In addition, owing to elevated construction costs and tight lending conditions, total new retail space delivered fell 28% sequentially to just under 5.6 million square feet. This represented the second-lowest total on record.
The overall availability rate in the third quarter fell 10 basis points (bps) to 4.8%, marking at least an 18-year low per the CBRE report. Neighborhood, community and strip centers witnessed the largest year-over-year decline of 50 bps and recorded availability of 6.6%.
However, the overall average asking rent of $23.42 per square foot dipped 2.1% year over year. This was mainly an indication of the fact that landlords are expecting demand to ease in the forthcoming quarters amid the likelihood of the U.S. economy slowing down.
Projections for Q3
Kimco owns properties in the drivable first-ring suburbs of its top major metropolitan Sunbelt and coastal markets, which offer several growth levers like high employment and strong spending power. Given a robust retail real estate environment in the third quarter, the company is likely to have witnessed healthy demand for its properties, boosting its quarterly performance.
This retail REIT enjoys a diverse tenant base, led by a healthy mix of essential, necessity-based tenants and omni-channel retailers. This is likely to have aided stable revenue generation during the to-be-reported quarter, boosting top-line growth.
Moreover, as the mixed-use segment continues to gain from the recovery in the apartment and retail sectors, Kimco’s focus on developing mixed-use assets clustered in strong economic metropolitan statistical areas that serve the last mile is likely to have given it an edge by driving net asset value.
The company’s top line is expected to have improved on the back of these tailwinds. The Zacks Consensus Estimate for KIM’s quarterly revenues stands at $439.1 million, implying 1.3% growth from the prior-year reported number.
The consensus mark for revenues from the rental property is currently pegged at $437.66 million, up from $429.04 million in the year-ago period. Our estimate stands at $427.70 million, suggesting a marginal fall year over year.
Kimco, continuing with its asset-base expansion, acquired Stonebridge at Potomac Town Center in Woodbridge, VA, this August. The 504,000-square-foot, grocery-anchored lifestyle center was purchased for $172.5 million and provides Kimco with a variety of growth prospects, including the potential to develop three outparcel retail buildings, boost density through mixed-use development and improve the existing merchandising mix through the recapture of below market leases.
The company’s robust balance sheet position is likely to have supported its growth endeavors.
Nonetheless, higher e-commerce adoption and a rise in interest expenses are anticipated to have cast a pall on Kimco’s performance to some extent during the quarter. We estimate a year-over-year increase of 17.6% in its third-quarter interest expenses.
The company’s activities during the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been unchanged at 39 cents over the past two months. Moreover, the figure indicates a year-over-year decline of 4.9%.
Q3 Developments
In August, Kimco entered into a definitive merger agreement to acquire RPT Realty RPT, which owns and operates a national portfolio of open-air shopping center destinations located mainly in the top markets of the United States, in an all-stock transaction valued at roughly $2 billion. The amount is inclusive of the assumption of debt and preferred stock.
Per the agreement terms, RPT shareholders will receive 0.6049 of the newly issued Kimco shares for each RPT share held.
The deal, expected to materialize at the beginning of 2024, is likely to be accretive to Kimco’s key financial and operating metrics on an immediate basis and enhance its growth prospects, tenant mix and balance sheet strength. Kimco anticipates a pro forma equity market capitalization of around $13 billion and a total enterprise value of roughly $22 billion once the transaction closes.
Earnings Whisper
Our proven model does not conclusively predict a surprise in terms of FFO per share for Kimco this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — increases the odds of a beat. However, that is not the case here.
Earnings ESP: Kimco has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Kimco currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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