Is It Wise to Retain Kimco (KIM) Stock in Your Portfolio Now?
Kimco Realty KIM is well-positioned to benefit from its portfolio of premium properties in top major metro Sunbelt and coastal markets amid healthy retail demand. Its focus on grocery-anchored shopping centers, mixed-use assets and a solid balance sheet position bode well for long-term growth. However, a rise in e-commerce adoption and an elevated interest rate environment are major concerns.
What’s Aiding it?
Kimco’s properties are located 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. Particularly, 86% of the annual base rent (ABR) comes from its top major metro markets. Given the strategic location of its properties, it is likely to witness healthy demand in the upcoming period, boosting leasing activity.
Kimco enjoys a diverse tenant base, led by a healthy mix of essential, necessity-based tenants and omnichannel retailers. Given the strength of its retailers with a developed omnichannel presence, the company is likely to be able to generate stable rental revenues.
During uncertain times, the grocery component saved the grace of the retail REITs, and 82% of Kimco’s ABR came from grocery-anchored centers in the third quarter of 2023. KIM has set a goal to reach 85% of its ABR from this segment by 2025.
From 2018 to the third quarter of 2023, Kimco witnessed 51 consecutive quarters of positive leasing spreads, indicating solid pricing power across its high-quality portfolio. Also, retention rates for the grocery portfolio remain higher compared with the non-grocery portfolio. Given the necessity-driven nature of Kimco’s grocery-anchored portfolio, it is likely to continue witnessing healthy leasing activity in the upcoming period and remains well-positioned to tide over challenging times.
Apart from having a focus on grocery and home-improvement tenants, Kimco focuses on mixed-use assets clustered in strong economic metropolitan statistical areas. The mixed-use asset category is benefiting from the recovery in both the apartment and retail sectors. In the third quarter of 2023, mixed-used assets contributed 13% to Kimco’s ABR. The company targets to achieve 15% of its ABR from mixed-use assets by 2025.
Additionally, Kimco maintains a solid balance sheet position. This retail REIT exited the third quarter of 2023 with more than $2.4 billion of immediate liquidity. Kimco’s consolidated debt maturity profile is 8.8 years. The company’s unencumbered properties represent around 91% of its properties and 92% of its total net operating income (NOI). With a healthy financial footing, KIM is well-positioned to capitalize on long-term growth opportunities.
What’s Hurting KIM?
However, the efforts of online retailers in recent years to go deeper into the grocery business have emerged as a concern for this retail REIT that focuses on building a premium portfolio of grocery-anchored shopping centers.
Also, tenant bankruptcies related to Bed Bath & Beyond are likely to hurt occupancy levels in the near term and affect the company’s profitability. In the third quarter of 2023, pro-rata portfolio occupancy of 95.5% was down 30 basis points (bps) sequentially due to a 37-bps impact pertaining to vacating the last remaining leases with Bed Bath & Beyond.
Additionally, a high interest rate environment may lead to high borrowing costs for the company, affecting its ability to purchase or develop real estate. KIM has a substantial debt burden, and its total consolidated debt as of Sep 30, 2023 was around $7.1 billion. Our estimate indicates a year-over-year increase of 7.8% in the company’s current-year interest expenses.
So far in the quarter, shares of this Zacks Rank #3 (Hold) company have risen 8.1%, slightly lower than its industry's upside of 8.4%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Tanger Factory Outlet Centers SKT and Urban Edge Properties UE. While Tanger Factory Outlet Centers sports a Zacks Rank #1 (Strong Buy), Urban Edge Properties carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has moved 1.6% northward over the past month to $1.94.
The Zacks Consensus Estimate for Urban Edge Properties’ ongoing year’s FFO per share has been raised 1.7% over the past two months to $1.19.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
Tanger Inc. (SKT) : Free Stock Analysis Report
Urban Edge Properties (UE) : Free Stock Analysis Report
