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Kimco Realty (KIM) Beats Q3 FFO Estimates, Updates Outlook

Retail real estate investment trust (REIT) Kimco Realty Corporation’s KIM third-quarter 2017 adjusted funds from operations (FFO) came in at 38 cents per share, surpassing the Zacks Consensus Estimate of 37 cents. The company reported the same figure in the year-ago quarter.

Total revenues came in at $294.8 million, up 3.4% from the prior-year quarter. Adjusted revenues for the quarter were $290.9 million, up 4.2% from the year-earlier quarter. However, the figure missed the Zacks Consensus Estimate of $294.8 million.

At the end of the reported quarter, pro-rata occupancy came in at 95.8%, indicating a sequential increase of 30 basis points (bps).

Same-property net operating income (NOI) flared up 3.1% year over year. Pro-rata rental-rate leasing spreads grew 16%, with rental rates for new leases and renewals/options, climbing 52% and 8.1%, respectively.

Kimco Realty Corporation Price, Consensus and EPS Surprise
 

Note: The EPS numbers presented in the above chart represent funds from operations (FFO) per share.

Balance Sheet Position

Kimco exited third-quarter 2017 with cash and cash equivalents of around $156.6 million, up from $142.5 million recorded at year-end 2016.

The company also received $23.7 million as cash distribution from its investment in Albertsons LLC.

Portfolio Activity

During the third quarter, the company announced acquisitions of Jantzen Beach Center, an open-air shopping center spanning 752,000 square feet of space, for $131.8 million. The company also acquired a land parcel adjacent to Del Monte Plaza for $24.1 million.

In addition, Kimco acquired land parcels adjacent to the company’s Gateway Station, Jantzen Beach and Webster Square shopping centers, for $26.4 million.

On the other hand, the company’s third-quarter sales aggregated $62.5 million. This involved the disposition of four shopping centers and a land parcel totaling 579,000 square feet of space.

Guidance

Kimco narrowed its outlook for 2017. The company projects FFO as adjusted per share in the $1.51-$1.52 band as compared to the previous range of $1.50-$1.54. The Zacks Consensus Estimate for full-year 2017 is currently pegged at $1.53.

Notably, for the current year, Kimco projects the U.S. portfolio occupancy to be in the range of 95.8-96.2%, same-property NOI to be up 1.5-2%, operating property acquisitions of $340-$375 million, and dispositions worth $350-$400 million.

Dividend Update

Kimco’s board of directors announced a quarterly cash dividend of 28 cents. This reflects a 3.7% sequential hike in dividends. The dividend will be paid on Jan 16 to shareholders of record as of Jan 2, 2018.

Our Viewpoint

Solid operating performance mirrors encouraging prospects for the company, going forward. Kimco remains on track with its strategic 2020 Vision, which envisages the disposal of non-strategic assets and ownership of premium assets in major metro markets in the United States. This is reflected in its portfolio-restructuring activities in the reported quarter.

Further, its focus to enhance the company’s small-shops portfolio has resulted in a year-over-year increase in occupancy. With premium properties in high-income and high-growth areas, Kimco is well poised for growth.

However, we note that aggressive disposition activities have an earnings-dilution impact and can likely constrain the company’s growth in the short run. Also, store closures and bankruptcy filing by retailers amid rising popularity of e-retail remains a pressing concern for this retail REIT.

Kimco currently has a Zacks Rank #3 (Hold).

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

The stock has lost 26.5% year to date, underperforming the 7% loss incurred by the industry it belongs to.

We now look forward to the earnings releases of other REITs like Ramco-Gershenson Properties Trust RPT, DDR Corp. DDR and General Growth Properties, Inc. GGP. While DDR will release results on Nov 2, Ramco-Gershenson and General Growth Properties are slated to report their numbers on Oct 31.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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