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Why Is Kimco Realty (KIM) Down 2.6% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Kimco Realty (KIM). Shares have lost about 2.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kimco Realty due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Kimco Realty's Q2 FFO as Expected, Revenues Beat

Kimco Realty’s second-quarter 2019 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 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 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 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Kimco Realty has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Kimco Realty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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