Note:FLASH REPORT; more details to come, changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.
Reason for Report: FLASH UPDATE: 1Q18
Previous Ed.:4Q17 and 2017 Earnings Update, Mar 27, 2018
Flash Update (earnings update to follow)
On Apr 26, 2018, Kimco Realtydeclared its 1Q18earnings results. The company’s funds from operations (FFO) came in at 39 cents per share, surpassing the Zacks Consensus Estimate of 36 cents. This compares favorably with the year-ago figure of 37 cents.
The company posted revenues from rental properties of $230.4 million in the reported quarter, reflecting a year-over-year increase of 1.2%. Moreover, total revenues improved 3.6% to $304.1 million year over year.
Notably, the company registered new leasing spreads of 15.6%. This represents the 16th sequential increase in rental rate for new leases by more than 10% over the prior rent for the comparable space.
Quarter in Detail
At the end of the first quarter, pro-rata occupancy came in at 96.1%, indicating a sequential expansion of 10 basis points (bps), and 80 bps year over year.
Same-property net operating income (NOI) climbed 2.6% year over year. Pro-rata rental-rate leasing spreads grew 8.1%, with rental rate for new leases and renewals/options, climbing 15.6% and 7.3%, respectively.
Balance Sheet Position
Kimco exited 1Q18 with cash and cash equivalents of around $218.3 million, down from $238.5 million recorded at year-end 2017.
Portfolio Activity
During the reported quarter, Kimco sold 21 shopping centers, spanning 2.3 million square feet of space, for a gross price of $219.5 million, with the company’s share of the sales price being $210.2 million.
Share Repurchase Program
The company repurchased 1.6 million shares of common stock for $24.3 million under its $300-million share-repurchase program in the first quarter.
Guidance
Kimco provided its FFO per share outlook for full-year 2018. The company projects FFO per share at $1.42-$1.46, similar to the previous guidance. This is based on same-property NOI growth (excluding redevelopments) projections of 1.5-2.0%, net disposition estimations of $700-$900 million, and total redevelopment & development investment of $425-$525 million.
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.
MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON KIM.
Portfolio Manager Executive Summary[Note: Only highlighted material has been changed.]
Kimco Realty is one of the major owners and operators of neighborhood and community shopping centers in the United Staes. The company is headquartered in New Hyde Park, NY.
Trend of Broker Opinions:Broker sentiments on the stock remain skewedtowards the neutral side with 70.6% of the firms rating the stock neutral, 17.6% rating it positive and 11.8% rendering negative rating. Target prices provided by the firms range from a low of $16 to a high of $23 per share. The average came in at $18.73, implying a positive return of 32.6%.
Neutral or equivalent outlook – Twelve firms or 70.6% —These firms with a neutral stance believe Kimco has put in solid efforts to transform its portfolio to better locations and a stronger tenant mix, but remained concerned about the lackluster retail real estate environment. The firms believe Kimco’s improving portfolio of grocery-anchored shopping centers will help drive dependable mall traffic. Firms are of the opinion that Kimco’s efforts to capitalize on value-creation opportunities through development and redevelopment projects will stoke cash flow growth. However, according to the firms, the retail real estate market environment is expected to remain challenging in the near termwith increased level of retailer bankruptcies and store closures. In addition, firms are concerned about the company’s exposure to some challenged tenants.
Positive or equivalent outlook –Three firms or 17.6% —According to the bullish firms, a solid portfolio and strong liquidity position have positioned Kimco well to ride on the growth trajectory. These firms believe the company remains on track with its strategic 2020 Vision that envisages the ownership of premium assets in major metro markets in the United States as well as a reduction in the joint-venture portfolio. The firms view the company’s efforts to invest in its redevelopment pipeline will improve leasing and occupancy levels over the long run. Further, firms are of the opinion that disposition environment is still active and hence Kimco has decent opportunities to shed its non-core assets at attractive prices. According to these firms, the company’s investment in Albertsons, if monetized, will offer more balance sheet flexibility. It can use the amount to fund its sizable redevelopment pipeline, to reduce leverage or buyback shares.
Negative or equivalent outlook – Two firms or 11.8% — These firms with a negative stance are of the view that additional store closures and asset sales will likely weigh on the company’s earnings. These firms believe that Kimco has exposure to some challenged tenants. Though these tenants comprise a small percentage of its overall rent, any additional tenant fallout is expected to disrupt the company’s cash flow. This is primarily due to the high amount of money and time it takes to backfill these big boxes. In fact, the choppy retail real estate environment is expected to impact Kimco’s fundamentals and pricing power. Firms also remain pessimistic about the company’s plan to shed significant amount of assets in 2018. This is expected to moderate near-term earnings growth. Also, firms are concerned about the depressed valuation levels as well as the increasing popularity of online grocery shopping. This could reduce Kimco’s competitive advantage of owning grocery-anchored properties.
Mar 27, 2018
Overview [Note: Only highlighted material has been changed.]
New Hyde Park, NY-based Kimco — a retail real estate investment trust (REIT) — along with its subsidiaries is one of the major owners and operators of neighborhood, and community shopping centers in the United States. Since Kimco went public in 1991, it has been widely recognized for acquiring properties with below-market rate leases and maintaining a strong balance sheet, with an easy access to capital that enables it to pursue strategic opportunities and facilitate consistent growth.
As of Dec 31, 2017, Kimco owned interests in 493 U.S. shopping center properties, spanning 83.2 million square feet of leasable space, covering 29 states, Puerto Rico and Canada.
Further information on the company is available on its website:
Key investment considerations according to the firms are as follows:
Key Positive Arguments / Key Negative Arguments- Kimco generally signs long-term leases with high credit tenants, which limits downside risks and provides a steady source of income.
- Kimco continues its portfolio transformation and simplification initiatives by disposing non-strategic assets, shedding joint venture investments, while targeting attractive markets and acquiring premium quality assets, which is encouraging.
- The company has a strong balance sheet and follows a conservative capital management strategy. Additionally, the company has easy access to capital through debt or equity financing that provides the necessary resources to expand and develop its business.
- Kimco is aiming to raise its small shops’ portfolio.Such shops comprise service-based industries like saloons and spas, personal fitness, and medical practices which enjoy frequent customer traffic and are Internet-resistant.
- Kimco’s portfolio consists primarily of community shopping centers, and, therefore, is heavily dependent upon general economic conditions.
- The increase in consumer purchases through catalogs and the Internet has emerged as a pressing concern as it hurts the demand for retail real estate space.
- The company has a significant development pipeline that increases operational risks. Also, substantial divestitures lead to dilutive impact on earnings in the near term.
- Hike in rate of interest remains a concern for the company’s profitablity. It restricts the company’s ability to refinance existing debt, while increasing the interest cost on new debt. In addition, amid rising interest rates, the common stock buyers demand a higher dividend yield and this may hamper the market price of the common stock.
Note: Kimco operates on a calendar year basis.
Mar 27, 2018
Long-Term Growth [Note: Only highlighted material has been changed.]
Kimco has a premium portfolio in high-income, high-growth areas. The company has a strong tenant base comprising well-capitalized discount retailers that fared relatively well as U.S. consumers have become more price conscious in the aftermath of the recession.
Further, Kimco remains committed to enhance its portfolio quality through upgrades, focusing primarily on the larger assets in its core market and reducing exposure to non-core markets and JV investments. Consequently, Kimco monetized its investment in Latin America and essentially exited its operations in Canada. It is particularly aligning its focus on the North American portfolio and targeting specific core markets that have solid demographics, high barriers-to-entry, larger-sized properties and high population densities.
Moreover, with an increase in demand for small shop spaces, Kimco is leasing small shops to tenants from wireless communication, hair salons, personal fitness and medical practices industries.The company is currently focusing on increasing the occupancy of the small shops portfolio and the firms believe that its redevelopment activity would help in enhanching that.
Mar 27, 2018
Target Price/ Valuation [Note: Only highlighted material has been changed.]
Provided below is a summary of valuations and ratings as compiled by Zacks Research Digest:
Rating DistributionPositive / 17.6%↓
Neutral / 70.6%↓
Negative / 11.8%↑
Average Target Price / $18.73↓
Maximum Upside from Current Price / 62.8%
MinimumUpsidefrom Current Price / 13.2%
Upside from Current Price / 32.6%
Digest High / $23↓
Digest Low / $16↓
No. of Analysts with target price/total / 13/17
Risks to the price target include tenant concentration and leasing velocity. Additional risks include tenant bankruptcies, new retail supply and availability of for-sale retail properties.
Recent Events[Note: Only highlighted material has been changed.]
On Mar 19, 2018, Kimco initiated a program — Pop It Up Here! — which is expected to help retailersdiscover locations for pop-up shops from within its portfolio.Pop It Up Here!, developed by Kimco’s LABS (Leaders Advancing Business Strategy) Program, enables brands to look through the available spaces online that are pre-approved and ready to be moved in.
On Feb 20, 2018, Kimco announced that it expects to gain from its investments in Albertsons Companies. This is because a definitive agreement between Albertsons Companies and Rite Aid Corporation has been announced under which Albertson will acquire all the outstanding shares of Rite Aid. The merger is likely to close early in the second half of 2018, conditioned upon approval of Rite Aid’s shareholders, regulatory approvals, and other customary closing norms.
OnFeb 2, 2018, Kimco announced 4Q17 earnings results. Adjusted funds from operations (FFO) for the quartercame in at 38 cents per share, in line with the Zacks Consensus Estimate. The company had reported the same figure in the year-ago quarter. Results were backed by strong leasing metrics and decent net operating income (NOI) growth.
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.
Revenues[Note: Only highlighted material has been changed.]
According to the company, 4Q17 revenuesfrom rental properties came in at $310.6 million. The figure also compared favorably with the year-ago number of $292.9 million. It also surpassed the Zacks Consensus Estimate of $299 million. Revenues from rental properties for 2017 came in at $1.18 billion, up 2.6% year over year (y/y).
At the end of 4Q17, U.S. pro-rata occupancy came in at 96%, reflecting a 20-basis-point (bps) expansion sequentially.
Outlook
Management believes heightened focus on coastal markets and grocery-anchored centers will create an optimal portfolio and drive growth. Specifically, per management, coastal markets of New York, the D.C.-Baltimore-Philadelphia corridor, Miami, Los Angeles, and the Bay Area will provide high-growth opportunities. Hence, the company is aimed at fortifying its foothold in these markets.
According to the firms, Kimco’s focus on acquisitions in high-growth coastal markets and disposition of underperforming assets is likely to help the company improve the quality of portfolio and tenant roster.The company is also evaluating the addition of mixed-use components at its centers. This will likely drive decent traffic in its shopping centers and bolster sales.
Margins [Note: Only highlighted material has been changed.]
Per the company, total operating expenses flared up 4.8% y/y to $236.1 million in 4Q17. Nonetheless, total operating income rose 10.2% y/y to $79.1million.Also,total operating expenses edged down 0.7% y/y to $863.3 million in 2017,while total operating income rose 12.2% y/y to $337.4 million.
For 4Q17, same-property NOI inched up 1.2% y/y. Pro-rata rental-rate-leasing spreads grew 9.2%, with rental rates for new leases and renewals/options, climbing 13.2% and 7.9%, respectively.
Outlook
For 2018, Kimco projects same-property NOI (including redevelopments) to be at 1.25-2%.Per management, asset revamp will contribute to net asset value over the long term.
According to the firms, Kimco’s portfoli-repositioning efforts will fuel NOI growth. Further, firms anticipate an acceleration in NOI growth from capital investments in existing assets in the long term. However, firms believe Kimco’soccupancy level and rent growth might be strained in the nearterm due to the challenging retail real estate environment and expected large-scale dispositions.
FFO per Share[Note: Only highlighted material has been changed.]
Kimco reported 4Q17FFO as adjusted of 38 cents per share, in line withthe Zacks Consensus Estimate.The company reported the same figure in the year-ago quarter.Notably, FFO as adjusted, excludes the effects of transactional income and charges. Also, NAREIT FFO for 4Q17 came in at 38 cents per share, in line with the prior-year quarter figure.
For 2017, FFO as adjusted came in at $1.52 per share, ahead of the prior-year tally of $1.50. Also, NAREIT FFO per share for 2017 came in at $1.55, well ahead of the prior-year tally of $1.32.
Outlook
Kimco issued its NAREIT FFO per share outlook for 2018. The company projects NAREIT FFO per share in the band of $1.42-$1.46 for the year.
Since Kimco expects to be a net seller in 2018, firms think that this might hinder FFO growth. These firms believe higher expected asset sales in 2018 will have dilutive impact on earnings in the near-term and hencelowered the FFO estimates for 2018 and 2019.
Balance Sheet/Portfolio Activity/Others[Note: Only highlighted material has been changed.]
Balance Sheet
Kimco exited 4Q17 with cash and cash equivalents of around $238.5 million, up from $142.5 million recorded at year-end 2016.
Dividend
OnJan 31, 2018,Kimco’s board of directors announced quarterly cash dividend of 28 cents per share. The dividend will be paid on Apr 16 to common shareholders of record on Apr 3, 2018.
Outlook
Per management, the company has been able to significantly improve its weighted average maturity profile. Kimco remains focused on strengthening the company’s balance sheet and optimizing its flexibility.
According to the firms, Kimco has been able to improve its balance sheet over the years and enjoys solid access to the financial markets. Firms believe utilizing asset sale proceeds to repurchase shares and repay high coupon debt is accretive for the company. Also, firms expect that monetizing its Albertsons investments could be a more prudent way to de-lever the company’s balance sheet and provide higher liquidity.
Portfolio Activity
Kimco remains on track with its strategic 2020 Vision, which envisages the ownership of premium assets in core markets in the United States as well as a reduction in the joint-venture portfolio.
During 4Q17, the company acquired one shopping center as well as two adjacent parcels, aggregating 845,000 square feet for $140.6 million, including $43.0 million of mortgage debt.Kimco also completed the acquisition of Whittwood Town Center, an open-air grocery-anchored shopping center spanning 783,000 square feet of space, for $123 million.
For 2017, Kimco’s acquisitions totaled three shopping centers and 10 land parcels for $382.1 million, with Kimco’s pro-rate share being $377.4 million.
On the other hand, in 4Q17 the company sold 16 shopping centers for $234.2 million, with its share of the sales price being $174.0 million. In 2017, Kimco completed dispositions of 38 shopping centers and three land parcels spanning 4.4 million square feet, for a gross price of $565.7 million. Kimco’s share of the sale price came in at $430.4 million.
Outlook
For 2018, Kimco projects dispositions of $700-$900 million. The company will focus on portfolio upgradation in 2018 as it continues to sell non-core assets, and recycle the proceeds in development and redevelopment projects. It estimates these development and redevelopment projects to total $425-$525 million in 2018. On the acquisition front, the company will focus on adjacent and unowned anchor land parcels within its existing portfolio.
Others
On Mar 19, 2018, Kimco initiated a new program Pop It Up Here!, which is expected to help retailers to discover locations for pop-up shops from within its portfolio.
With the elevated demand for pop-up shops among consumers, retailers are trying to benefit from the growing trend. Generally, pop-up shops are meant to occupy a vacant space for a short period and that’s how the retailers can test the demand for the particular product.