Kimco Realty KIM is well-poised to benefit from its portfolio of premium properties in key metro markets. Its conveniently located grocery-anchored properties, focus on mixed-use assets and strong balance-sheet position augur well.
Kimco’s well-located properties in the drivable first-ring suburbs of its top major metropolitan Sunbelt and coastal markets offer several growth levers like high employment and strong spending power. Particularly, the top major metro markets contribute 85% of the annual base rent (ABR).
Moreover, a large portion of Kimco’s portfolio comprises grocery-anchored centers that offer essential goods and services. This segment generated 80% of Kimco’s ABR in the second quarter of 2022 and aided the company’s occupancy growth, leasing activity and continuation of positive leasing spreads.
Kimco signed 498 leases totaling 2.3 million square feet in the quarter and the pro-rata anchor occupancy was 97.6%, rising 70 basis points (bps) year over year. Given the necessity-driven nature of the grocery-anchored portfolio, this upbeat trend is likely to continue in the upcoming period, thereby ensuring a steady stream of cash flows.
Further, Kimco has been focusing on its mixed-use assets clustered in strong economic metropolitan statistical areas (MSAs) that serve the last mile. This segment is gaining from the recovery in both the apartment and retail sectors. Through a selected collection of mixed-use projects, redevelopments and active investment management, KIM has been targeting to increase its net asset value.
To enhance its overall portfolio quality, Kimco has been divesting its joint venture assets that have maximized their value and utilizing the proceeds to fund acquisitions and development and redevelopment projects. Subsequent to the June-quarter end, Kimco acquired two grocery-anchored centers located in Philadelphia, PA and Massapequa, NY. Such moves highlight its prudent capital management practices and relieve the pressure off its balance sheet.
Also, Kimco maintains a robust balance-sheet position and has ample financial flexibility. It exited the second quarter of 2022 with nearly $2.3 billion of immediate liquidity.
Analysts seem bullish on this Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has been revised marginally upward over the past month to $1.55.
However, over recent years, the adoption of e-commerce by consumers and their preference for online shopping has lowered the demand for physical stores and in turn the retail real estate space. This has made retailers opt for store closures. To further aggravate the situation, social-distancing norms have forced the reluctant ones, who once favored in-store purchases, to opt for online retailing to avoid physical contact.
Also, higher interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate. Further, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
Shares of Kimco have declined 3.5% over the past three months compared with the industry’s fall of 1.5%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are Regency Centers REG, Kite Realty Group Trust KRG and EPR Properties EPR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share has marginally moved northward in the past month to $3.92.
The Zacks Consensus Estimate for Kite Realty Group Trust’s ongoing year’s FFO per share has been raised 1.1% over the past month to $1.82.
The Zacks Consensus Estimate for EPR Properties’ 2022 FFO per share has marginally moved upward in the past two months to $4.77.
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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