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

Kimco Realty Corporation KIM is slated to report second-quarter 2020 earnings on Aug 7, before the market opens. The company’s quarterly results might display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Jericho, NY-based retail real estate investment trust (REIT) delivered a positive surprise of 2.78% in terms of FFO per share. Results reflected healthy portfolio occupancy, leasing spreads on new lease and positive same-property net operating income (NOI).

Kimco beat the Zacks Consensus Estimate in three of the trailing four quarters and met in the other, the average surprise being 2.09%. This is depicted in the graph below:

Kimco Realty Corporation Price and EPS Surprise

Kimco Realty Corporation Price and EPS Surprise

Kimco Realty Corporation price-eps-surprise | Kimco Realty Corporation Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

Kimco enjoys ownership of high-quality assets, concentrated in the top 20 major metro markets, which offer several growth levers. Further, in these uncertain times, having a grocery component has been saving the grace of retail REITs, and for Kimco more than 77% of its annual base rent comes from grocery-anchored centers. The company also launched the curbside pick-up program during the June-end quarter to adhere to social-distancing norms, and facilitate its tenants and shoppers.

Moreover, Kimco’s investment in Albertsons Companies ACI is paying off, as the retail REIT announced in June receiving $71.4 million from its investments in Albertsons upon closing of the company’s initial public offering. These proceeds were primarily planned for use in debt reduction.

Per the company, during the second quarter, a pre-tax gain of $55-$65 million is likely to have been recognized by Kimco from the sale of Albertsons’ shares during the IPO. This is over and above the previously-announced $125-$135 million gain the company is set to recognize from Albertsons common stock repurchase from present shareholders in tandem with its sale of convertible preferred stock. Moreover, a gain of $524.7 million will be recognized by Kimco on the mark-to-market of its remaining investment in Albertsons, which is based on the Jun 30 closing share price. However, the gains won’t affect Kimco’s FFO.

However, the retail real estate market had already been bearing the brunt of declining traffic, store closures and retailer bankruptcies, and now the pandemic has only added to its woes. In the April-June quarter, the escalating number of coronavirus cases forced several retailers to close stores. Some retailers also reduced their store hours, while many others kept the e-retail operations running, as consumers are increasingly opting for online purchases to avoid gathering in public spaces.

Per a report from CBRE Group CBRE, the overall retail availability rate in second-quarter 2020 expanded 3 basis points to 6.4%, while retail properties witnessed their first quarterly decline in net absorption since early 2011. Neighborhood, community & strip centers resulted in majority of the decrease in net absorption.

Kimco, too, is not immune to store closures and retailer bankruptcies. The choppy retail real estate environment is likely to have curbed its growth momentum in the to-be-reported quarter, as secular industry headwinds continue to dampen industry fundamentals. Further, rent relief and deferral requests from its tenants might have hurt revenue growth.

The Zacks Consensus Estimate for Kimco’s quarterly revenues is currently pinned at $250 million, calling for a 12.2% decline from the prior-year quarter reported figure.

In addition to the above, Kimco’s activities during the April-June quarter were inadequate to gain analyst confidence. The Zacks Consensus Estimate of 23 cents for quarterly FFO per share indicates a downward revision of 20.7% over the past month. Also, the figure calls for a decline of 36.1%, year over year.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Kimco this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kimco currently carries a Zacks Rank #4 (Sell) and has an Earnings ESP of +5.69%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

We also look forward to the earnings releases of other retail REITs like Simon Property Group, Inc. SPG and The Macerich Company MAC, both of which are scheduled to release earnings next week.

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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