Retail real estate investment trust (REIT) Kimco Realty Corp. 's KIM second-quarter 2018 funds from operations (FFO) came in at 37 cents per share, surpassing the Zacks Consensus Estimate of 36 cents. However, the reported tally came in lower than the year-ago figure of 38 cents.
The company, however, posted adjusted revenues of $289.4 million, which marginally missed the Zacks Consensus Estimate of $290.3 million. The revenue figure also compares unfavorably with the year-ago number of $292.8 million.
Nevertheless, the company registered new leasing spreads of 11.5%. This marks the 17th straight quarter of increase in rental rate for new leases by more than 10% over the previous rent for the comparable space. Its small-shop occupancy reached an all-time high in the quarter. Further, Kimco raised its outlook for 2018 as well.
Quarter in Detail
At the end of the second quarter, pro-rata occupancy came in at 96.0%, denoting an expansion of 50 basis points (bps) from the prior-year quarter. Notably, pro-rata small-shop occupancy improved 50 bps, year over year, to 90.2%, while pro-rata anchor occupancy expanded 60 bps year over year to 98.1%.
Same-property net operating income (NOI) grew 3.8% year over year. This excludes a positive 10 bps from the impact of redevelopments. Pro-rata rental-rate leasing spreads were 9.2%, with rental rates for new leases and renewals/options, climbing 11.5% and 8.5%, respectively.
Kimco exited second-quarter 2018 with cash and cash equivalents of around $305.6 million, up from $238.5 million recorded at year-end 2017.
During the reported quarter, Kimco sold 17 shopping centers, spanning 2.7 million square feet of space, for $334.0 million, of which the company's share of dispositions amounted to $319.3 million. The Q2 property sales' blended cap rate came in line with its expected range of 7.5-8%.
Kimco raised its full-year 2018 guidance. The company projects FFO per share in the range of $1.43-$1.46 compared with the prior guidance of $1.42-$1.46. This is based on same-property NOI (excluding redevelopments) growth projections of 2-2.5% against the prior projections of 1.5-2%, net dispositions estimate of $700-$900 million (unchanged), and total redevelopment and development investment of $425-$525 million (unchanged). The Zacks Consensus Estimate for full-year 2018 FFO per share is currently pegged at $1.46.
Share Repurchase Update
The company repurchased 3.5 million shares of common stock for $50.8 million (at an average price of $14.53) during the April-June quarter under its $300-million share repurchase program.
Kimco's board of directors announced a quarterly cash dividend of 28 cents per share. This will be paid on Oct 15, to shareholders of record on Oct 2, 2018.
We are impressed with Kimco's performance, which highlights higher leasing spreads, same-property NOI and occupancy. In addition, the company is on track with its 2020 Vision that envisages the ownership of high-quality assets, concentrated in major metro markets which offer several growth levers. Furthermore, its share-buyback program raises optimism.
Nevertheless, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers are expected to hurt this retail REIT's performance. Also, we note that aggressive disposition activities have a dilutive impact on earnings and might impede the company's growth in the short run.
Kimco currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Kimco Realty Corporation Price, Consensus and EPS Surprise
Kimco Realty Corporation Price, Consensus and EPS Surprise | Kimco Realty Corporation Quote
We now look forward to the earnings releases of other REITs like Simon Property Group, Inc. SPG , AvalonBay Communities, Inc. AVB and Alexandria Real Estate Equities, Inc. ARE which are slated to report their quarterly numbers on Jul 30.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) - a widely used metric to gauge the performance of REITs.
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