Tuesday, April 29, 2014

Kimco Unveils 2Q Transaction Update - Analyst Blog

Kimco Realty Corp. (KIM) – a retail real estate investment trust (REIT) – recently unveiled its second-quarter 2013 transaction activities. During the quarter, the company's investments totaled to around $172 million, while the proceeds from divestitures amounted to about $307 million.

Acquisitions

During the quarter, Kimco bought 2 former joint venture (JV) properties namely 'The Marketplace at Factoria' and 'Canyon Square Plaza'. The assets spanning 607,000 square feet were acquired for $146.6 million.

Wash.-based shopping center, The Marketplace at Factoria is situated in the prosperous Seattle community of Bellevue. The property, which is 94% leased, boasts a cluster of retail giants such as Target Corp. (TGT), Nordstrom Inc. (JWN) and Wal-Mart Stores Inc. (WMT). On the other hand, Calif.-based Canyon Square Plaza is in the Los Angeles-Long Beach-Santa Ana MSA (Metropolitan Statistical Area). The property is a grocery-anchored center and occupied by a North American grocery company, Albertsons.

Moreover, during the quarter, Kimco increased its stake in 3 existing institutional JVs – Kimco-UBS ('KUBS'), Kimco Income Fund I ('KIF I') and Kimco Income REIT ('KIR') – for $133.3 million.

Divestitures

During second-quarter 2013, Kimco disposed 11 U.S. shopping centers for $71.6 million, of which the company's share was $36.9 million. Since the initiation of its asset-recycling program in 2010, Kimco has sold 121 properties spanning 11.9 million square feet, for $907.2 million. Of this, Kimco's share was $551.4 million.

In addition, the company sold 9 assets of its Mexican shopping center portfolio to a local real estate operator for 3.35 billion Mexican pesos ($274 million), of which company's share was $93 million.

Non-Retail Portfolio Update

In tune with the monetization of non-retail assets, Kimco reduced its non-retail investment portfolio by $177.9 million (46%) during second-quarter 2013. Notab! ly, the non-retail portfolio is presently at its lowest level, since 2010, and represents below 2% of gross assets.

Moreover, during the second quarter, Kimco and its JV partner – American Industries – decided to sell their interests in several trusts that hold Mexican industrial properties portfolio. The assets proposed for sale to Terrafina – a Mexican REIT – were valued at about $600 million.

Our Viewpoint

We remain impressed with Kimco's strategic move of restructuring the overall portfolio through divestiture of non-strategic assets and acquisition of high-quality properties. Moreover, acquiring interests in existing JVs go well with the company's core operating strategy. This augurs well for future earnings as the properties are positioned mostly in high-income, high-growth areas. Moreover, the high credit tenant retention limits the downside risks and provides a long-term steady source of rental income for the company.

Kimco is scheduled to release second-quarter 2013 results on Jul 30, after the closing bell. The Zacks Consensus Estimate for second-quarter funds from operations (FFO) is currently pegged at 33 cents per share.

Kimco has an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of 0.00% for the second quarter. This, along with its Zacks Rank #3 (Hold), reduces the chances of a positive earnings surprise.

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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