Kimco Unveils 4Q Transaction Update - Analyst Blog

Kimco Realty Corp. (KIM), a real estate investment trust (REIT), recently provided an update on the portfolio restructuring activities it undertook in the fourth quarter of 2012. During the quarter, the company’s overall transaction volume exceeded $1.2 billion.

Acquisitions

Kimco acquired nine new properties in the quarter. The purchases of City Heights Retail Village, Savi Ranch and Metro New York Grocery Portfolio were the noteworthy ones.

San Diego-based City Heights Retail Village is a grocery anchored property spanning 109,000 square feet. The property, acquired for $35.6 million, is positioned in the upscale downtown location. Savi Ranch, an unencumbered retail center, is situated in prosperous town of Los Angeles, Yorba Linda. The retail center, which spans 161,000 square feet, was acquired for $34.5 million. Metro New York Grocery Portfolio was acquired for $26.1 million. The 59,000 square-feet urban portfolio comprises five fully-leased properties.

In addition, Kimco acquired two joint venture-owned properties – Greeley Commons and Snowden Square Shopping Center. Colorado-based Greeley Commons spans 139,000 square feet and is fully occupied. Kimco acquired the remaining 89% stake in the unencumbered shopping center for $23.4 million. Snowden Square Shopping Center is positioned in Columbia, Maryland.  Kimco bought the 58% remaining share in the property for $6.2 million.

The abovementioned acquisitions provided Kimco with a strong tenant base of world-class retailers with long-term leases, such as Bed Bath & Beyond Inc. (BBBY), OfficeMax Incorporated (OMX), Family Dollar Stores Inc. (FDO) and The Home Depot, Inc. (HD).

For the full year 2012, Kimco acquired a total of 27 shopping centers for a gross price of $653.6 million. This includes acquisition of interests in three Canada-based shopping centers for $113.6 million.

Dispositions

Kimco sold 34 U.S. retail properties, spanning 3.9 million square feet, for $246.1 million in the quarter. Among these, the key dispositions include the divestiture of a shopping center portfolio in Ohio for $65.1 million as well as an Ohio and Indiana portfolio for $66 million.

For the full year 2012, Kimco sold 68 U.S. shopping centers, spanning around 7.7 million square feet, for $631.8 million. Since the launch of its asset recycling program in 2010, Kimco has sold 110 properties, spanning 10.9 million square feet, for $843.9 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. This augurs well for its earnings going forward as the properties are positioned mostly in high-income, high-growth areas. Moreover, the high credit tenant retention limits the downside risk and provides a long-term steady source of income for the company.

Kimco is scheduled to release its fourth-quarter 2012 results on February 5, 2013. The Zacks Consensus Estimate for the fourth quarter FFO (fund from operations) is currently pegged at 31 cents per share.

The company’s fourth-quarter FFO will likely miss the Zacks Consensus Estimate as its earnings ESP (expected surprise prediction) is negative 3.23%. Kimco currently carries a Zacks #3 Rank (Hold). Also, we maintain our long-term ‘Neutral’ recommendation on the stock.

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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