On Jun 18, 2014, we issued an updated research report on the retail real estate investment trust (REIT) – Kimco Realty Corporation (KIM).
On May 7, Kimco reported first-quarter 2014 adjusted FFO per share of 34 cents, in line with the Zacks Consensus Estimate and up 6.3% year over year. Growth in revenues, occupancy levels and significant leasing activity were the positives.
Going forward, we believe that Kimco’s efforts to improve its core portfolio through the divestiture of non-strategic and non-retail assets as well as acquisition of high-quality properties would help it to ride on the growth trajectory. Recently, Kimco divested a 4-property portfolio in Mexico for a gross sales price of 1.1 billion Mexican pesos (US $82.1 million) and reaped around 688.1 million Mexican pesos (US $53.3 million) as pro-rata proceeds.
In addition, a significant redevelopment pipeline is encouraging as the properties are positioned in high-income, high-growth areas. Moreover, the high credit tenant retention limits the downside risk and provides a steady long-term source of income for the company.
Although this portfolio transformation activity looks promising going forward, high disposition activity tends to dilute earnings in the near term and a huge redevelopment pipeline increases operational risks. Furthermore, rising online sales that adversely affect the demand for retail space remains a concern and an anticipated increase in the interest rate may dent the financial results, going forward.
Over the last 30 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share remained stable at $1.38 and $1.46, respectively. The stock currently has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Better-ranked stocks in the REIT industry include Retail Properties of America, Inc. (RPAI), Rouse Properties, Inc. (RSE) and Chambers Street Properties (CSG). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.
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