Kimco Realty (KIM) Meets Q2 FFO Estimates, Reaffirms Outlook

Retail real estate investment trust (REIT) Kimco Realty Corporation’s (NYSE:KIM) second-quarter 2017 adjusted funds from operations (FFO) came in at 38 cents per share, in line with the Zacks Consensus Estimate. The company reported the same FFO a year ago.

Total revenue for the quarter was $297 million, up 2% from the year-ago quarter. Revenues also comfortably surpassed the Zacks Consensus Estimate of $292 million.Adjusted revenues came in at $292.8 million, up 2% from the prior-year quarter.

At the end of the quarter, pro rata occupancy came in at 95.5%, reflecting a sequential increase of 20 basis points (bps).

Same-property net operating income (NOI) inched up 0.3% year over year. Pro rata rental-rate leasing spreads grew 10.5%, with rental rates for new leases and renewals/options, increasing 17% and 7.8%, respectively.

Kimco Realty Corporation Price, Consensus and EPS Surprise

Note: The EPS numbers presented in the above chart represent funds from operations (FFO) per share.

Balance Sheet Position

Kimco exited second-quarter 2017 with cash and cash equivalents of around $143.1 million, up from $142.5 million at year-end 2016.

The company also received $23.7 million as cash distribution from its investment in Albertsons LLC.

Portfolio Activity

During the quarter, the company announced acquisitions of a parcel for $700 million. Kimco share of the purchase price was $340 million. The parcel located in Augusta, GA, is adjacent to the company’s Augusta Exchange shopping center.

On the other hand, its second-quarter sales aggregated $155.8 million, with Kimco’s share of sale price $128.1 million. This involved the disposition of nine shopping centers, aggregating 892,000 square feet of space and two land parcels. Following these disposals, the company wound up its business in the states of Maine and Louisiana.

(Read more:Kimco Buys Jantzen Beach Center, Reveals Q2 Activities .)

Guidance

Kimco reaffirmed its outlook for 2017. The company projects FFO as adjusted per share in the $1.50–$1.54 band. The Zacks Consensus Estimate for full-year 2017 is currently pegged at $1.52.

Notably, the company estimates the U.S. portfolio occupancy to be in the range of 95.8–96.2%, same-property NOI (including redevelopments) to grow 2–3%, operating property acquisitions of $300–$400 million and dispositions of $300–$400 million.

Dividend Update

Kimco’s board of directors announced a quarterly cash dividend of 27 cents. The dividend will be paid on Oct 16 to shareholders of record as of Oct 4, 2017.

Our Viewpoint

The company remains on track with its strategic 2020 Vision, which envisages the disposal of non strategic assets and ownership of premium assets in major metro markets in the U.S. This is reflected in its portfolio restructuring activities in the quarter. With premium properties in high-income and high-growth areas, Kimco is well poised for growth.

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However, we note that mall traffic continues to decline owing to a change in shopping patterns. Online purchases have taken precedence over in-store purchase. These have made retailers reconsider their footprint and eventually opt for store closures. Further, retailers not being able to cope with competition are filing bankruptcies. This has emerged as a pressing concern for retail REITs like Kimco, as this trend is curtailing demand for the retail real estate space considerably.

Kimco currently has a Zacks Rank #4 (Sell).

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