Kimco Realty Corp.KIM is ridding its portfolio of non-core assets and joint venture stake for a more streamlined business model. In this regard, the New Hyde Park, New York-based retail REIT will dispose of its stake in a portfolio of 22 properties for C$715 million ($533 million), including debt assumption, to RioCan Real Estate Investment Trust, its Canadian joint venture partner.
The move follows Kimco and RioCan's decision to unwind their Canadian joint venture. The process of winding down the 15-year old joint venture, which has a total of 35 properties, would occur in phases.
Initially, 22 properties will be on sale. Of these, 19 will be acquired by RioCan this month itself. The stake acquisition of the three remaining properties is expected to be completed in Jan 2016.
The second cohort comprises 10 institutional-quality retail assets that both Kimco and RioCan would put up for sale (one property is already under a conditional contract to be sold). The JV partners would look for disposal of these properties in the first half of 2016.
The third bunch includes three transitional properties - previously under Target Corp.'s TGT occupancy - that will be considered later. Notably, earlier this year, Target made its exit from the Canadian market.
According to Dave Henry, the chief executive officer of Kimco, "this transaction allows both companies to pursue their own longer term strategic objectives." Henry further described the sale as a provider of a crucial capital source to finance redevelopment activities and strengthen the balance sheet.
For Kimco, we believe the move is a strategic fit, given its current focus on transforming its portfolio and simplifying its business model. The company is shedding non-core assets, disposing joint venture stake and concentrating its future investments on neighborhood and community shopping center assets. Instead, it will primarily focus on the key U.S. markets, which have demographics and household income levels higher than the national average.
In fact, the sale of the first 19 properties would help Kimco fetch around $220 million in cash. That amount is net of its pro-rata share of debt and the impact of currency and taxes.
On the other hand, the purchase of stake in these joint venture assets would enhance RioCan's portfolio concentration in the 6 largest markets in Canada and especially in the Greater Toronto Area. While the portfolio acquisition would be immediately accretive, the completion of the second phase is expected to lead to an additional annualized net operating income generation of around $45 million.
Kimco currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider other better-placed stocks like The Macerich Company MAC and Regency Centers Corporation REG . Both these stocks have a Zacks Rank #2 (Buy).
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