Kimco Realty Continues to Impress In 2Q With ‘Simplify And Transform’ Portfolio Strategy

Kimco Realty (KIM, Outperform)’s strategy of simplicity and changes/upgrade of portfolio by concentrating on high quality assets and reducing joint ventures – resulted into another successful quarter. Kimco purchased 10 shopping centers from JV partner SEB Asset Management in Mid-Atlantic area for $275.8 million. In second quarter, revenue of $260.24 million increased by 14.6%, beating consensus expectations by $19.39 million, while adjusted EBITDA grew 20%. The earnings of $0.35 per share was nearly in-line with our and consensus estimates.

The higher growth was mainly led by portfolio transformation following company’s upgrade strategy; however core inner growth was stronger.
Combined same-property net operating income, or SSNOI, grew 2.8% discounting currency fluctuation, which is a conscientious rate of internal rise provided slow-moving macro-economic conditions, yet we consider it lower than rest of retail owners we analyzed.

In general business operational measures seems healthier than the same-store results. Kimco’s combined shopping center pro rata occupancy was overall up 110 bps to 94.8%. U.S. Shopping center occupancy was up 80 bps to 97.8%. The rental rates for new leases were increased by 13.3% and renewals were increased by 8.2%. Additionally re-leasing spreads were solid which came in United States (9.7%), Canada (10.4%) and Latin America (12.3%) correspondingly, which shows strong growth in rents on new against retiring leases, finally indicates strong retailer demand for space in Kimco centers.

Kimco kept reshaping its portfolio by changing, acquiring and developing properties. We would adopt strategy of repositioning portfolio in markets with solid demographics, which ultimately provide higher rental rates with quick internal growth for future. Kimco Realty reaffirms adjusted FFO per share guidance of $1.36 to $1.40 in full year 2014; with combined portfolio occupancy likely to increase 50 to 75 bps and combined same-property net operating income to rise between 2.5% and 3.5%. Finally, we are raising price estimate to $24.00 from $22.00 and retain ‘Outperform’ rating.

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Ryan Madden, CPA, is a senior analyst for The Downtown Leader. If you have a great story idea for Ryan Madden, you can write at [ ].