Kimco Realty (KIM) Meets Q3 FFO Estimates, Raises Outlook

Retail real estate investment trust (REIT) Kimco Realty Corp. 's KIM third-quarter 2018 funds from operations (FFO) as adjusted came in at 36 cents per share, in line with the Zacks Consensus Estimate. However, the reported tally came in lower than the year-ago figure of 38 cents.

The company posted revenues of $283.1 million, which surpassed the Zacks Consensus Estimate of $281.7 million. The revenue figure, however, compares unfavorably with the year-ago number of $294.8 million.

Nevertheless, the company registered new leasing spreads of 12.1%. This marks the 19th 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.

Kimco Realty Corporation Price, Consensus and EPS Surprise

Kimco Realty Corporation Price, Consensus and EPS Surprise | Kimco Realty Corporation Quote

Quarter in Detail

At the end of the third quarter, pro-rata occupancy came in at 95.8%, denoting a contraction of 20 basis points (bps) from the prior quarter and flat year over year. The decline reflects the impact of seven Toys R Us' vacates.

Pro-rata anchor occupancy shrunk 50 basis points sequentially and 30 bps year over year to 97.6%, reflecting the above-mentioned vacates. However, pro-rata small-shop occupancy advanced 60 bps sequentially and 130 basis points year over year to 90.8%.

Same-property net operating income (NOI) grew 2.2% year over year. This excludes a positive 10 bps from the impact of redevelopments. Pro-rata rental-rate leasing spreads were 8.9%, with rental rates for new leases and renewals/options, climbing 12.1% and 7.9%, respectively.

Balance-Sheet Position

Kimco exited third-quarter 2018 with cash and cash equivalents of around $146.4 million, down from $238.5 million recorded at year-end 2017.

Portfolio Activity

During the reported quarter, Kimco sold 10 shopping centers, along with two land parcels, spanning 1.3 million square feet of space. The dispositions were made for $156.8 million, of which the company's share amounted to $153.7 million.


Kimco raised its full-year 2018 guidance. The company projects FFO as adjusted per share of $1.44-$1.46 compared with the prior guidance of $1.43-$1.46. The Zacks Consensus Estimate for full-year 2018 FFO per share is currently pinned at $1.45.

This is based on the same-property NOI (excluding redevelopments) growth projections of 2.3-2.7% against the prior projections of 2-2.5%, net dispositions estimate of $800-$900 million, against the earlier projection of $700-$900 million. Moreover, total redevelopment and development investment projection has been revised to $425-$475 million compared with the prior guidance of $425-$525 million.

Dividend Update

Kimco's board of directors announced a quarterly cash dividend of 28 cents per share. This will be paid on Jan 15, 2019, to shareholders of record on Jan 2, 2019.

Our Viewpoint

Kimcois 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, the company is aiming to expand its small shops' portfolio. These shops basically comprise service-based industries, such as restaurants, salons and spas, personal fitness and medical practices. The shops enjoy frequent customer traffic and are Internet resistant. Amid limited new supply and favorable demographics, this diversification is likely to help Kimco limit its operating and leasing risks.

Also, making progress with its asset dispositions, the company announced that asset sale for third-quarter 2018 exceeded $150 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.

Additionally, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers are expected to impede this retail REIT's performance. Rate hike add to its woes.

Kimco currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

We now look forward to the earnings releases of other REITs like UDR Inc. UDR , Vornado Realty Trust VNO and AvalonBay Communities, Inc. AVB which are slated to report their quarterly numbers on Oct 29.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) - a widely used metric to gauge the performance of REITs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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