Retail real estate investment trust (REIT), Kimco Realty Corporation’s (KIM) third-quarter 2014 funds from operations (FFO) per share, as adjusted, came in at 36 cents, a penny ahead of the Zacks Consensus Estimate and 3 cents above the prior-year quarter figure.
Results benefited from growth in U.S. same-property net operating income (NOI). Total revenue increased 18.3% year over year to $262.0 million, surpassing the Zacks Consensus Estimate of $252 million. The company has also raised the quarterly dividend by 6.7%.
Quarter in Details
At the quarter-end, pro-rata occupancy, in the U.S. and combined portfolios (including Canada and Latin America), stood at 95.5% and 95.3%, respectively, denoting year-over-year increases of 110 basis points (bps) and 130 bps.
Same-property net operating income (NOI) in the U.S. portfolio climbed 4.9% from the year-ago period. This included a 1.7% uptick on inclusion of redevelopments. Moreover, combined same-property NOI, excluding the impact of foreign currency, rose
4.8% from the comparable prior-year period, reflecting a 2.6% rise in the Canada portfolio and 12.6% hike in the Latin America portfolio.
Kimco inked a total of 511 new leases, renewals and options in the combined portfolio, spanning 2.2 million square feet. Further, in the U.S. portfolio, pro-rata rental-rate leasing spreads moved north 7.1%, with rental rates for new leases rising 10.2% and renewals/options advancing 6.4%.
Kimco exited the quarter with around $154.2 million of cash and cash equivalents, down from $192.2 million as of Jun 30, 2014.
Notable Portfolio Activity
In the quarter, Kimco acquired a portfolio of 10 predominantly grocery-anchored shopping centers, valued at $275.8 million, from its joint venture (JV) with SEB Asset Management. The company, which earlier enjoyed 15% ownership stake in this property, took over the remaining 85% stake from SEB for a sum of $69.8 million, which was subject to $193.6 million of mortgage debt.
On the other hand, Kimco offloaded ownership stake in 24 of its U.S. assets for a gross sales price of $263.6 million (including $35.2 million of mortgage debt). The company’s share was $205.4 million on a pro-rata basis.
In the Latin American Portfolio, Kimco vended three assets in Mexico for a gross sales price of 1.5 billion Mexican pesos ($110.8 million). Kimco’s pro-rata share of that sale price was around 1.3 billion pesos ($99.2 million).
Currently, the company has 37 properties lined up for sale, either under contract or with an accepted offer. The gross sales price aggregated around $215.6 million, with Kimco’s share expected at about $192.8 million. (Read more: Kimco Rides High on Deals Worth Over $650 Million in Q3)
2014 Outlook
Kimco has raised the lower-end of its 2014 adjusted FFO per share guidance to a range of $1.38 – $1.40, as against the prior range of $1.36 – $1.40. The Zacks Consensus Estimate of $1.38 per share also lies within this range.
The company’s outlook is based on expectations of combined portfolio occupancy growth of 80 – 100 bps (prior range being 50 – 75 bps) and same-property NOI increase in the range of 2.75% – 3.5% (previously 2.5% – 3.5%).
Raises Dividend
Kimco’s board of directors announced a 6.7% hike in its quarterly cash dividend rate to 24 cents per share from 22.5 cents on its common stock. The dividend will be paid on Jan 15, 2015 to shareholders of record on Jan 2.
Our Viewpoint
Going forward, solid demand for its properties and the portfolio-transformation initiatives, along with an easy access to capital, promises considerable upside potential for Kimco. However, near-term earnings dilution arising from high disposition activity remains a concern for this Zacks Rank #3 (Hold) stock.
Investors interested in retail REITs may consider better-ranked stocks like DDR Corp. (DDR), The Macerich Company (MAC) and Regency Centers Corporation (REG). All these stocks hold 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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