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Kimco Fully Acquires KIF I for $408M

Zacks Equity Research

Riding on the growth trajectory, Kimco Realty Corporation (KIM) acquired the remaining 60.9% stake in the 12-asset Kimco Income Fund I portfolio (KIF I) from its joint venture (:JV) partners. The $408.0 million purchase price includes the assumption of mortgage debt of $38.2 million.

As per the deal, Kimco will pay back $118.9 million of mortgage debt collateralized by 9 of these 12 properties. Moreover, this retail real estate investment trust (:REIT) achieved cash promote of about $18.8 million, using which its overall cash payment was reduced to $251.4 million.

KIF I Details

KIF I Properties, spanning 1.5 million square feet, are grocery-anchored and necessity-based shopping centers. Anchored by top national retailers such as – The TJX Companies, Inc. (TJX), Dick's Sporting Goods Inc. (DKS) and Safeway Inc. (SWY) – the properties are currently 98% occupied.

These KIF I assets are mainly based in high barrier to entry established markets having strong demographics such as Mid-Atlantic, Northeast and Northern California regions of the U.S. These strategically positioned assets enjoy a 3-mile, average household income and average base rent per square foot of $98,000 and $17.59, respectively – both exceeding Kimco’s current portfolio averages by 17% and 35%, respectively.

Our View

The abovementioned transaction synchronizes with Kimco’s ongoing efforts to simplify and reshuffle its business operations. In particular, the company has been aiming at decreasing the institutional JVs and partners count and bringing premium retail assets in its owned portfolio base. We believe this portfolio transformation initiative will go a long way in strengthening Kimco’s top-line growth.

Kimco is slated to announce its first-quarter 2014 results on May 7, 2014, after the closing bell. The Zacks Consensus Estimate for first quarter funds from operations (:FFO) per share is pegged at 34 cents, representing year-over-year growth of 2.38%.

Kimco currently has 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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