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Should You Hold Kimco Realty (KIM) With Retail Sales Surge?
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The U.S. economy is gaining strength, and consumer spending continues to be robust amid tax cuts and tighter labor market which is pushing up wages. This is evident from the recently-released retail sales figure for the month of July that marked growth of 0.5%, higher than the consensus estimate of 0.1%.
Not only sales at non-store retailers increased in the month, but gains were also noticed across eight out of 13 categories, including a rebound in sales at clothing stores, improvement in sales at bars and restaurants, as well as growth in sales at department stores. This healthy environment paints an encouraging picture for the retail real estate industry also.
Particularly, Kimco Realty Corp. (KIM - Free Report) is making every effort to unlock the embedded value of its portfolio through development and re-development initiatives. The company’s tenant roster also includes several well-capitalized retailers that have fared relatively well.
The company 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. Amid transformation in the retail landscape, Kimco remains well poised to navigate through mall traffic blues, with focus on service and experiential tenants and omni-channel players.
Moreover, the company is aiming to expand 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.
Further, 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. It maintains a strong liquidity profile, and exited second-quarter 2018 with more than $300 million in cash and nil outstanding on its $2.25-billion revolving credit facility. Additionally, the company aims at growing its unencumbered asset pool. Also, it has a well-staggered debt maturity profile.
Late last month, Kimco reported second-quarter 2018 funds from operations (FFO) per share of 37 cents, which surpassed the Zacks Consensus Estimate of 36 cents. The company registered new leasing spreads of 11.5%. This marked the 17th 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. Furthermore, Kimco raised its outlook for 2018 as well.
Nonetheless, in connection to its strategic efforts, the company is making significant disposition of its assets. The company also expects to be a net seller of properties in 2018 and projects its pro-rata share of net dispositions at $700-$900 million. In the first half of 2018, the company already disposed 38 shopping centers and four land parcels, aggregating 5 million square feet of space for $556.1 million, of which, the company’s share of the sales price was $531.8 million. While such efforts are encouraging for the long term, the dilutive effect on earnings from high disposition activity cannot be averted in near term.
Moreover, though upbeat consumer confidence and an improving economy have infused optimism into the retail market, mall traffic continues to suffer from the rapid shift in customers' shopping preference through online channels. In fact, with e-commerce gaining market share from brick-and-mortar stores, retailers are compelled to reconsider their footprint and eventually opt for store closures in recent years, while others unable to cope with competition have been filing bankruptcies. Such an environment has also led to tenants demanding substantial lease concessions which mall landlords find unjustified. These have cast a pall on retail REITs like Simon Property Group Inc. (SPG - Free Report) , GGP Inc. , Kimco Realty, Macerich Company (MAC - Free Report) and others, and their share prices have suffered in the past 12 months.
Addition, hike in rate of interest is expected to affect the REIT’s rate-sensitive business. It would restrict the company’s ability to refinance existing debt while increasing the interest cost on new debt. This has the power to adversely impact the company’s financial results and its dividend payout as well. In addition, amid rising interest rates, the common stock buyers demand a higher dividend yield and this may hurt the market price of the common stock.
The company’s shares have appreciated 19.6% in the past three months compared with its industry’s growth of 13.1%.
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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Image: Bigstock
Should You Hold Kimco Realty (KIM) With Retail Sales Surge?
The U.S. economy is gaining strength, and consumer spending continues to be robust amid tax cuts and tighter labor market which is pushing up wages. This is evident from the recently-released retail sales figure for the month of July that marked growth of 0.5%, higher than the consensus estimate of 0.1%.
Not only sales at non-store retailers increased in the month, but gains were also noticed across eight out of 13 categories, including a rebound in sales at clothing stores, improvement in sales at bars and restaurants, as well as growth in sales at department stores. This healthy environment paints an encouraging picture for the retail real estate industry also.
Particularly, Kimco Realty Corp. (KIM - Free Report) is making every effort to unlock the embedded value of its portfolio through development and re-development initiatives. The company’s tenant roster also includes several well-capitalized retailers that have fared relatively well.
The company 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. Amid transformation in the retail landscape, Kimco remains well poised to navigate through mall traffic blues, with focus on service and experiential tenants and omni-channel players.
Moreover, the company is aiming to expand 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.
Further, 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. It maintains a strong liquidity profile, and exited second-quarter 2018 with more than $300 million in cash and nil outstanding on its $2.25-billion revolving credit facility. Additionally, the company aims at growing its unencumbered asset pool. Also, it has a well-staggered debt maturity profile.
Late last month, Kimco reported second-quarter 2018 funds from operations (FFO) per share of 37 cents, which surpassed the Zacks Consensus Estimate of 36 cents. The company registered new leasing spreads of 11.5%. This marked the 17th 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. Furthermore, Kimco raised its outlook for 2018 as well.
Nonetheless, in connection to its strategic efforts, the company is making significant disposition of its assets. The company also expects to be a net seller of properties in 2018 and projects its pro-rata share of net dispositions at $700-$900 million. In the first half of 2018, the company already disposed 38 shopping centers and four land parcels, aggregating 5 million square feet of space for $556.1 million, of which, the company’s share of the sales price was $531.8 million. While such efforts are encouraging for the long term, the dilutive effect on earnings from high disposition activity cannot be averted in near term.
Moreover, though upbeat consumer confidence and an improving economy have infused optimism into the retail market, mall traffic continues to suffer from the rapid shift in customers' shopping preference through online channels. In fact, with e-commerce gaining market share from brick-and-mortar stores, retailers are compelled to reconsider their footprint and eventually opt for store closures in recent years, while others unable to cope with competition have been filing bankruptcies. Such an environment has also led to tenants demanding substantial lease concessions which mall landlords find unjustified. These have cast a pall on retail REITs like Simon Property Group Inc. (SPG - Free Report) , GGP Inc. , Kimco Realty, Macerich Company (MAC - Free Report) and others, and their share prices have suffered in the past 12 months.
Addition, hike in rate of interest is expected to affect the REIT’s rate-sensitive business. It would restrict the company’s ability to refinance existing debt while increasing the interest cost on new debt. This has the power to adversely impact the company’s financial results and its dividend payout as well. In addition, amid rising interest rates, the common stock buyers demand a higher dividend yield and this may hurt the market price of the common stock.
Nevertheless, 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 company’s shares have appreciated 19.6% in the past three months compared with its industry’s growth of 13.1%.
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.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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