Retail real estate investment trust (REIT), Kimco Realty Corporation (KIM) reported third-quarter 2013 adjusted funds from operations (FFO) per share of 33 cents, in line with the Zacks Consensus Estimate and up 6.5% year over year.
The results were aided by a decent operating portfolio performance. Kimco also raised the lower end of its previously issued full-year 2013 adjusted FFO per share guidance and hiked its dividend payout.
Including non-recurring items, the company’s FFO, on a reported basis, was 34 cents per share, up 17.2% from 29 cents in the year-ago period.
Total revenue of $241.5 million during the reported quarter was up 8.4% year over year and surpassed the Zacks Consensus Estimate of $233 million.
Quarter in Detail
In the U.S. Shopping Center Portfolio, pro-rata occupancy was 94.4%, up 100 basis points (bps) from the year-ago period. Pro-rata occupancy in Kimco’s combined shopping center portfolio was 94.0% at the quarter end, reflecting an uptick of 60 bps from the prior-year quarter.
Same-property net operating income (NOI) in the U.S. portfolio rose 2.7% year over year. Same-property NOI in the combined portfolio rose 2.3% over the same time period. This represented the 14th consecutive quarter of positive same-property NOI increase.
Leasing Activities
During the said quarter, Kimco inked a total of 582 new leases, renewals and options in the combined portfolio, spanning 2.1 million square feet. Moreover, pro-rata U.S. cash-basis leasing spreads moved north 7.3% with new leases increasing 13.7% and renewals/options climbing 4.8%.
Acquisitions
During the third-quarter, Kimco bought two U.S. assets – Village at Highlands Ranch II and ElmsfordCenter – in Colorado and New York, respectively. Littleton-based Village at Highlands Ranch II is part of an interrelated retail complex that is occupied by the area’s dominant grocer, King Soopers – a supermarket brand of The Kroger Co. (KR). The mortgage-free retail center positioned in a prosperous Denver suburb was bought for $14.6 million.
On the other hand, Elmsford Center that is located in the New York metro suburb was acquired for $23 million. The power center is anchored by Bed Bath & Beyond Inc. (BBBY) and Sports Authority. Both the assets are positioned in upscale communities, with a three-mile average household income of $121,000 and $123,000, respectively.
Following the third quarter end, Kimco bought 2 shopping centers – Northridge Shopping Center (Arvada, Colo.) and Five Forks Crossing (Lilburn, Ga.) – for a total price of $29.6 million.
Notably, since 2010, Kimco has acquired 70 properties in highly affluent areas of the U.S. for $1.7 billion. Moreover, the company is in a deal to acquire a 24-property retail portfolio mainly in the Boston metropolitan market, spanning 1.4 million square feet, for $270 million, subject to mortgage debt of $121.5 million. The deal is expected to close during the first quarter of 2014.
Dispositions
During third-quarter 2013, Kimco vended 8 assets of its U.S. shopping center portfolio for $75.5 million, including $5.9 million of mortgage debt. Kimco’s pro-rata share of proceeds from these sales was $53.3 million. It recognized gains of $7.6 million on the sale of four properties while impairments of $0.7 million on the other four properties.
With this, since the initiation of the U.S. non-strategic retail disposition program in 2010, Kimco has sold 133 properties for $1.1 billion. Of this, its share of the proceeds was $651.3 million.
In addition, Kimco and its JV partner – American Industries – divested their stake in 84 Mexican industrial assets for $603.5 million. The properties were sold to Terrafina – a Mexican REIT. Moreover, Kimco offloaded a 4-property Mexican shopping center portfolio to its local operating partner, Planigrupo, for $84 million.
Additionally, Kimco sold its 43% stake in a Guadalajara, Mexico-based asset Centro Sur shopping center for $41 million. Also, the company divested its 50% stake in a Chile-based 9-property shopping center portfolio to its local operating partner for $50.2 million. Kimco had a pro-rata share of proceeds from these sales of $259.4 million.
Notably, as of Sep 30, 2013, Kimco’s Mexican investments had a book value of around $445.2 million. This will be lowered by about $400.9 million following the vending of 27 shopping centers, which are currently in the negotiation stage.
Liquidity
As of Sep 30, 2013, Kimco had $401.7 million (up from $156.5 million as of Jun 30, 2013) of cash and cash equivalents, with consolidated net debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortization) ratio of 5.4x (compared to 5.8x from the prior quarter).
In addition, Kimco has access to immediate liquidity of about $1.6 billion under its unsecured revolving credit facility worth $1.75 billion.
Raises 2013 Outlook
Kimco again raised the lower end of its adjusted FFO guidance range and now expects it in the range of $1.32–$1.33 (prior range being $1.31–$1.33). The company projects combined portfolio occupancy to grow 50 to 75 bps while combined same-property NOI to climb 3.00% to 4.00%.
Moreover, Kimco has provided an initial guidance for 2014 adjusted FFO per share. The company expects it to range between $1.36 and $1.40.
Hikes Dividend
Kimco announced a quarterly cash dividend of 22.5 cents per share on its common stock, reflecting a 7.1% hike from the prior quarter. The dividend will be paid on Jan 15, 2014, to shareholders of record on Jan 2, 2014.
Our Take
We are encouraged with the decent results at Kimco. Moreover, the dividend hike and the raise of the lower end of its previously issued 2013 adjusted FFO per share guidance boost investors’ confidence in the stock. The company is currently focusing on owning and operating strategic retail assets in North America. The portfolio restructuring activity, along with easy access to capital promises considerable upside potential for Kimco.
Yet, stiff competition from other players in the market, short-term headwinds for occupancy amid an unsettled economic environment and rise in internet sales that adversely affect the demand for retail space remain our concerns.
Kimco currently carries a Zacks Rank #3 (Hold). We now look forward to the other retail REIT, Regency Centers Corporation (REG), which is scheduled to release its earnings today and has a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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