What's in the Cards for Kimco (KIM) This Earnings Season?

Kimco Realty CorporationKIM is slated to report fourth-quarter and full-year 2018 results on Jan 31, before the market opens.

In the las t report ed quarter, this New Hyde Park, NY-based retail real estate investment trust (REIT) delivered an in-line performance in terms of funds from operations (FFO) per share. The company registered new leasing spreads of 12.1%. This marked 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.

Over the trailing four quarters, Kimco beat estimates in two occasions and posted in-line results in the other two, recording average beat of 1.39%. The graph below depicts this surprise history:

Kimco Realty Corporation Price and EPS Surprise

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

For full-year, the company projects FFO as adjusted of $1.44-$1.46 per share. The Zacks Consensus Estimate for the fourth-quarter and full-year 2018 FFO per share is currently pegged at 35 cents and $1.46, respectively.

Let's see how things are shaping up for this announcement.

Factors at Play

Kimco 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. Particularly, amid transformation in the retail landscape, the company remains well poised to navigate through mall traffic blues, with development and redevelopment efforts, and focus on service and experiential tenants and omni-channel players.

Moreover, Kimco is aimed at expanding 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. As such, amid upbeat consumer confidence backed by improving economy and job-market gains, the company may experience high occupancy and healthy leasing spreads in the to-be-reported quarter.

Furthermore, Kimco is engaged in the execution of strategic measures to boost its capital structure, and enhance the company's growth profile and tax efficiency as well. In the Dec-end quarter, the company is expected to have maintained a strong balance sheet. Moreover, the company remains focused on growing its unencumbered asset pool, which is encouraging.

Nevertheless, in connection to its strategic efforts, Kimco has been making significant disposition of the company's assets. In fact, accelerating its portfolio-transformation initiatives, the company reported fourth-quarter 2018 and full-year 2018 disposition deals worth $357.1 million and $1.1 billion, respectively. Through these transactions, the company surpassed the high end of its full-year property sales goal of $900 million.

Particularly, during the Oct-Dec quarter, Kimco disposed 16 properties and two land parcels spanning 1.9 million square feet of space, with the company's share of sale proceeds being $228.4 million. Accelerated disposition activity in the fourth quarter aided Kimco to earn $913.9 million in sale proceeds from 68 properties and eight land parcels for the full year. While such efforts are encouraging for the long term, the dilutive effect on earnings from high disposition activities cannot be averted in the near term.

In addition, the recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the fourth quarter at 10.2%. However, it marginally inched up from 10% at year-end 2017. Mall vacancy rate slightly edged down to 9% in the quarter from 9.1% in the third quarter. At year-end 2017, the company's vacancy was 8.3%. Despite the store-closure issue plaguing the market, the little stability indicates slowdown in new development.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues of Kimco is currently pinned at $278.3 million - reflecting a 10.4% estimated decline from the prior-year period. The Zacks Consensus Estimate of FFO per share of 35 cents for the quarter also indicates a year-over-year drop of 7.9%.

In addition to the above, Kimco's activities during the Oct-Dec quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share of 35 cents for the to-be-reported quarter remained unchanged over the past month.

Here is what our quantitative model predicts:

Kimco does not have the right combination of two key ingredients - a positive Earnings ESP and Zacks Rank #3 (Hold) or higher - for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP: The Earnings ESP for Kimco is -0.94%.

Zacks Rank: Kimco carries a Zacks Rank #3 (Hold), currently.

Although a favorable Zacks Rank increases the predictive power of ESP, but we also need a positive ESP to be confident of a beat in terms of FFO per share.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

AvalonBay CommunitiesAVB , slated to report fourth-quarter results on Feb 4, has an Earnings ESP of +0.22% and holds a Zacks Rank of 3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

American Tower CorporationAMT , set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc.OHI , scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and sports a Zacks Rank of 2.

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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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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