Aggressive Dispositions To Hurt Kimco (KIM): Time To Sell?
Zacks Investment Research | Mar 11, 2018 10:41PM ET
Kimco Realty’s (NYSE:KIM) financials are likely to be hurt by decreasing footfall at malls amid the shift of consumers toward online channels, store closures and bankruptcy of retailers. Moreover, the dilutive impact on earnings from the sale of assets cannot be bypassed in near term. Competition from other players in the industry and rate hike pose other challenges to this retail REIT. However, Kimco’s 2020 Vision, which aims ownership of premium assets in strategic locations, will enhance its portfolio.
For fourth-quarter 2017, Kimco reported adjusted funds from operations (FFO) of 38 cents per share, in line with Zacks Consensus Estimate. The company reported the same figure in the year-ago quarter as well. Kimco posted revenues from rental properties of $310.6 million in the reported quarter, which surpassed the Zacks Consensus Estimate of $299.0 million. The figure compared favorably with the year-ago number of $292.9 million. Moreover, the company leased more than 10 million square feet in 2017, denoting the highest leasing volume in past 10 years.
Kimco is focused on simplifying its business structure and thus is making significant disposition of its assets. In fact, Kimco’s disposition activity in 2017 consisted of 25 consolidated operating properties and nine parcels, for an aggregate sales price of $352.2 million. The company expects to be a net seller of properties in 2018 and projects its pro-rata share of dispositions net of any acquisitions to be in the range of $700-$900 million. While such efforts are encouraging for the long term, the dilutive effect on earnings from high disposition activity cannot be averted in the near term.
Further, though upbeat consumer confidence and an improving economy have infused optimism into the retail market, mall traffic continues to suffer amid a rapid shift in customers’ shopping preferences and patterns with online purchases growing by leaps and bounds. These have made retailers reconsider their footprint and eventually opt for store closures. Retailers that are not being able to cope with competition are filing for bankruptcies. This has emerged as a pressing concern, as the trend is curtailing demand for the retail real estate space considerably.
Moreover, the rising rate of interest is likely to hurt the REIT’s rate-sensitive business. It would restrict the company’s ability to refinance existing debt while increasing the interest cost on new debt. This has the power to adversely impact the company’s financial results and its dividend payout. In addition, amid rising interest rates, the common stock buyers demand a higher dividend yield and this may negatively impact the market price of the common stock.
Get The News You Want
Shares of Kimco have underperformed the Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.