Kimco (KIM) is executing on its strategic objectives to strengthen portfolio growth and simplify its business model. KIM’s portfolio fundamentals are healthy, and the REIT is taking advantage of the favorable supply/demand environment to push rents, re-tenant underperforming retailers and grow its redevelopment pipeline.
KIM’s $1.1 billion redevelopment pipeline, along with another potential $2 billion shadow pipeline of redevelopment opportunities, is a significant driver of future growth, in our view. KIM’s healthy portfolio with organic growth opportunities, a robust redevelopment pipeline and the sale of over $3 billion of lower-quality, slower-growing centers are positioning the portfolio to average 3% same-store net operating income (SSNOI) growth through different economic cycles, in our opinion.
We maintain our Buy rating and $29 target price based on a 12% premium to our $26 net asset value (NAV) at a 6% cap rate.
What Your Peers Are Reading
Pro-rata occupancy in the U.S. portfolio increased 10 basis points year-over-year (bps y/y) and 20 bps sequentially to 95.8%. Pro-rata occupancy in the combined portfolio declined 40 bps y/y and was flat sequentially at 95.4%. KIM’s occupancy could fluctuate in the coming quarters as the REIT allows some leases to expire to pursue re-tenanting and redevelopment opportunities.
KIM’s anchor occupancy is 98.2%, and the opportunity to grow portfolio occupancy is through small-shop lease-up.
Small-shop occupancy increased 70 bps y/y and sequentially at 88.7%. KIM’s redevelopment activity should be able to increase small shop occupancy, as new anchors come online, driving small shop leasing activity.
Raymond James & Associates
Guidance: Kimco reiterated 2016 headline funds from operations (FFO) guidance of $1.54-1.62/share and FFO as adjusted guidance of $1.48-1.52/share ([with] only approximately 3% y/y growth at the midpoint) that was announced at its investor day in December.
Consensus expectations for FFO as adjusted stand at $1.51/share, and we are currently in print at $1.50/share. Assumptions in guidance were unchanged and include U.S. portfolio occupancy of 95.7 to 96.2%, SSNOI growth of +2.5% to +3.5%, $450 million to $550 million of acquisitions (Kimco’s share), and $825 million to 975 million (Kimco’s share) of dispositions. Management noted at its investor day that it believes 2016 will be the final year of dilution from its portfolio transformation (a ~$0.06/share drag on FFO this year), and FFO growth is poised to accelerate in 2017.
Investment activity: Kimco previously announced Q4 and recent transaction activity … In particular, though, we would highlight a series of transactions since the end of the fourth quarter that are resulting in Kimco obtaining full ownership of the Owings Mills Mall (Baltimore metropolitan statistical area).
Specifically, the company (1) acquired the remaining 50% interest from General Growth Properties for $11.5 million, (2) purchased the anchor space owned by J.C. Penney for $5.2 million, and (3) is under contract to acquire the space owned by Macy’s for $7.5 million. Also of note, Kimco sold its interest in 23 Canadian shopping centers to RioCan and sold its last remaining shopping center in South America.
Cowen and Company
Kimco Realty (KIM) maintained its 2016 FFO/per share [guidance] of $1.48-$1.52 … vs. our $1.50. The guide assumes U.S. same store net operating income (SSNOI) growth of 2.5% to 3.5% and acquisitions and dispositions in the range of $450 million to $550 million and $825 million to $975 million, respectively.
The 2016 acquisition guide is $125 million below our estimate, indicating that the strength of the Q4 run rate should allow the company to meet our estimate with less capital than we have modeled.
Occupancy ended the quarter at 95.4% leased, down from 95.6% in Q4’14 and flat sequentially. Cash leasing spreads were a healthy 13.1% during the quarter, the highest since 2012.
Kimco was active externally in the fourth quarter. Kimco acquired Christown Spectrum, an 850,000-square-foot power center near Phoenix, for $115.3 million and the remaining 85% ownership interest in Conroe Marketplace for $54.4 million. Conroe Marketplace is a 289,000 square-foot power center near Houston.
The company also acquired the remaining 85% interest in The Shops at District Heights (near Washington) for $24.3 million as well as a 36-acre land parcel directly across from KIM’s Grand Parkway Marketplace (Texas) development project for $13.2 million. The land will be used in a Phase II expansion of this project. Also during the quarter, the company sold 88 wholly and joint venture assets for $1.7 billion ($908.3 million at KIM’s share).