Yahoo Finance Should You Retain Kimco (KIM) Stock in Your Portfolio Now?
Kimco Realty KIM is well-poised to benefit from its portfolio of premium retail properties in top major metro Sunbelt and coastal markets. Its focus on grocery-anchored shopping centers, mixed-use assets and a solid balance sheet position bode well for long-term growth. However, higher e-commerce adoption and an elevated interest rate environment remain key woes.
What’s Aiding it?
Kimco’s properties are located in the drivable first-ring suburbs of its top major metropolitan Sunbelt and coastal markets. Particularly, 82% of the annual base rent (”ABR”) comes from its top major metro markets. Given the strategic location of its properties, it is likely to witness healthy demand in the near term, boosting leasing activity.
Kimco enjoys a diverse tenant base, led by a healthy mix of essential, necessity-based tenants and omni-channel retailers. Given the strength of its retailers with a developed omnichannel presence, the company is likely to be able to generate stable cash flows. For 2024, we estimate a year-over-year increase of 9.5% in its net revenues from rental properties.
During uncertain times, the grocery component saved the grace of the retail REITs. As of May 2, 2024, RPT’s acquisition has boosted its ABR from grocery-anchored centers to 83% from 81% in 2022. KIM has set a target to reach 85% of its ABR from this segment.
From 2018 to the first quarter of 2024, Kimco witnessed 53 consecutive quarters of positive leasing spreads, indicating solid pricing power across its high-quality portfolio. Also, retention rates for the grocery portfolio remain higher compared with the non-grocery portfolio. Given the necessity-driven nature of Kimco’s grocery-anchored portfolio, it is likely to continue witnessing healthy leasing activity in the upcoming period and remains well-positioned to tide over challenging times.
Apart from having a focus on grocery and home-improvement tenants, the company emphasizes mixed-use assets clustered in strong economic metropolitan statistical areas. The mixed-use assets category is benefiting from the recovery in both the apartment and retail sectors.
Kimco has been following an opportunistic investment policy to enhance its overall portfolio quality. This includes divesting its joint venture assets and using the proceeds to fund acquisitions and development and redevelopment projects. In the first quarter of 2024, the company disposed of 10 operating properties and five land parcels in separate transactions for an aggregate sales price of $248.4 million.
The acquisition of RPT in January 2024 has benefited the company by increasing scale in high-growth target markets and preserving balance sheet strength. It expects spending to be within $50-$100 million toward the acquisition of or the purchase of additional interests in operating properties for the remainder of 2024.
It is actively pursuing redevelopment opportunities within its operating portfolio. The company projects its capital commitment toward these redevelopment projects and re-tenanting efforts for the remainder of 2024 will be within $225-$275 million.
Moreover, Kimco maintains a solid balance sheet position. It exited the first quarter of 2024 with $2 billion of immediate liquidity. Its consolidated weighted average debt maturity profile is 8.8 years. The company’s unencumbered properties represent around 92% of its properties and 93% of its total net operating income. It also enjoys investment-grade ratings of BBB+ from S&P and Baa1 from Moody’s, rendering it favorable access to the debt market. With a healthy financial footing, KIM is well-positioned to capitalize on long-term growth opportunities.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have declined 0.8% compared with the industry's fall of 4.1%.
Image Source: Zacks Investment Research
What’s Hurting it?
The market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. Particularly, the efforts of online retailers in recent years to go deeper into the grocery business have emerged as a concern for Kimco.
Kimco faces competition from several real estate companies and developers who compete with the company for leasing space in shopping centers for tenants. The properties compete with numerous open-air shopping centers with more convenient locations or better rents, in attracting and retaining retailers. This may affect Kimco’s ability to raise rental rates, including renewal rates and fill up vacancies.
A high interest rate environment may lead to high borrowing costs for the company, affecting its ability to purchase or develop real estate. KIM has a substantial debt burden, and its total consolidated debt, as of Mar 31, 2024, was around $7.59 billion. Our estimate indicates a year-over-year increase of 12.3% in interest expenses in 2024.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Realty Income O and Kite Realty Group Trust KRG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for O’s 2024 funds from operation (FFO) per share has moved marginally northward over the past month to $4.19.
The Zacks Consensus Estimate for KRG’s current-year FFO per share has been raised marginally over the past month to $2.05.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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