TJX TJX Companies Inc

Kimco Realty Corporation (KIM), a real estate investment trust (REIT), reported adjusted FFO (funds from operations) per share of 32 cents, in line with the Zacks Consensus Estimate and  rising by a cent from the prior-year quarter.

The results were aided by better-than expected growth in revenues and net operating income, which represented the highest quarterly increase since 2007. The company has also raised the lower end of its previously issued guidance.
 
Total revenue of $241.2 million during the reported quarter was up 7.7% year over year and exceeded the Zacks Consensus Estimate of $227 million.

Including non-operating impairments and transactional income and expenses, FFO, on a reported basis, was $134.9 million or 33 cents per share in the reported quarter, up from $126.2 million or 31 cents per share in the year-ago period.

Quarter in Detail

Gross occupancy in Kimco’s combined shopping center portfolio was 93.6% as of the end of the quarter, reflecting an uptick of 70 basis points (bps) from the prior-year quarter. In the U.S. portfolio, gross occupancy was 93.7%, an increase of 90 bps compared with the year-ago period.

Same-property net operating income (NOI) in the combined portfolio climbed up 4.0% year over year. This represented the 12th consecutive quarter of positive same-property NOI and the highest quarterly increase since the fourth quarter of 2007. Same-property NOI in the U.S. portfolio increased 3.7% over the same time period.

Leasing Activity

During the reported quarter, Kimco inked a total of 693 new leases, renewals and options in the combined portfolio, spanning 3.7 million square feet. Pro-rata U.S. leasing spreads in the U.S. portfolio increased 3.8% (cash-basis), including 13.5% for new leases, and 2.7% for renewals/options.

Notable Activities during 1Q

During the reported quarter, Kimco acquired or increased its equity interests in 8 retail properties spanning 1.5 million square feet for around $221 million. Among the acquired properties, 4 are next to or in immediate vicinity to Kimco’s existing shopping centers.

Moreover, the company purchased residual stake in 3 properties from its joint venture partners and in one property, it converted its preferred equity investment into a long-term retail joint venture.

The acquisitions provided Kimco with a strong tenant base of world-class retailers with long-term leases, such as Bed Bath & Beyond Inc. (BBBY) and The TJX Companies Inc. (TJX).

Kimco also raised its ownership interest in the Kimco Income Fund (KIF) joint venture portfolio to 29.8% from 15.2% through the acquisition of a minority partner’s interest for $19.9 million.

Kimco sold 2 shopping centers in the first quarter. The properties aggregated 292,000 square feet and were vended at a gross sale price of $10.3 million. The company also divested a non-retail urban property in Bronx, N.Y. for $3.6 million. Around 14 retail properties are currently in the contract negotiation stage for about $111 million.

Moreover, Kimco participated in a consortium that acquired 5 grocery banners’ operations totaling 877 locations from SUPERVALU Inc. (SVU). The company invested $71 million in total for its 15% interest in a consortium that is participating in two previously announced transactions with SUPERVALU Inc. This included $37 million for the acquisition of the grocery banners.

Moreover, as part of a tender offer, Kimco financed $34 million for around 8.2 million common shares (3.2% of the total shares outstanding) of SUPERVALU Inc.

Liquidity

As of Mar 31, 2013, Kimco had $166.9 million (up from $141.9 million at year-end 2012), with consolidated net debt to adjusted EBITDA (earnings before interest, tax, depreciation and amortization) ratio of 6.0x (compared to 5.7x from the prior quarter).

2013 Outlook

Kimco has raised the lower end of its prior issued guidance range. The company now expects adjusted FFO per share in the range of $1.29 – $1.33, compared to the prior range of $1.28 –$1.33.

In addition, Kimco increased its 2013 guidance range for the combined same-property NOI and now expects it to be 2.75% – 3.75%, compared with the prior guidance of 2.5% – 3.5%. The company expects combined portfolio occupancy to increase by 50 – 75 bps.

Dividend Update

Kimco announced a quarterly cash dividend of 21 cents per share on its common stock. The dividend will be paid on July 15, 2013 to shareholders of record on July 3.

Our Take

We are encouraged by the decent results at Kimco. The company has a premium portfolio of retail properties in high-income, high-growth areas and is currently focusing on its core business activities to tide over the volatility in the market. It is also making strategic acquisitions, which are expected to boost the company’s top-line.

In addition, it has a strong balance sheet with easy access to capital to allow continued growth. However, stiff competition from other players in the market and short-term headwinds for occupancy in the midst of an unsettled economic environment remain our concerns.

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

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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