Kimco Realty KIM is well-poised to benefit from its portfolio of premium retail properties in key metro markets. Its conveniently located grocery-anchored properties, focus on mixed-use assets and strong balance-sheet position augur well.
Kimco’s properties are located in the drivable first-ring suburbs of its major metropolitan Sunbelt and coastal markets, which offer several growth levers like high employment and strong spending power. Particularly, 85% of the annual base rent (ABR) comes from its major metro markets.
Moreover, a large portion of Kimco’s portfolio comprises grocery-anchored centers that offer essential goods and services. This segment generated 80% of Kimco’s ABR in the second quarter of 2022 and aided the company’s occupancy growth, leasing activity and continuation of positive leasing spreads.
In the second quarter. Kimco signed 498 leases, aggregating 2.3 million square feet, of which 348 were renewals totaling 1.6 million square feet and 150 were new leases totaling 711,000 square feet. The pro-rata anchor occupancy was 97.6%, up 70 basis points (bps) year over year and 30 bps from the previous quarter. Given the necessity-driven nature of the grocery-anchored portfolio, this upbeat trend is likely to continue in the upcoming period, thereby ensuring a steady stream of cash flow.
Further, Kimco has been focusing on its mixed-use assets clustered in strong economic metropolitan statistical areas (MSAs) that serve the last mile. This segment is gaining from the recovery in both apartment and retail sectors. Through a selected collection of mixed-use projects, redevelopments and active investment management, KIM has been targeting to increase its net asset value.
Also, Kimco maintains a robust balance-sheet position and has ample financial flexibility. It exited the second quarter of 2022 with nearly $2.3 billion of immediate liquidity.
Kimco as well as other retail REITs like SITE Centers Corp. SITC, National Retail Properties, Inc. NNN and Kite Realty Group Trust KRG are poised to benefit from the favorable job-and-wage growth environment, which supports consumer confidence, and extra accumulated savings during the pandemic. Also, there is pent-up consumer demand as consumers look for an exclusive in-store shopping experience following the pandemic downtime.
Focus on e-commerce resistant sectors, efforts to support omni-channel retailing, adaptive reuse capabilities and opportunities emanating from consolidations have poised Kimco, National Retail Properties, SITE Centers and Kite Realty Group well for growth.
However, inflationary pressure and economic slowdown might cast a pall on recovery. Also, higher e-commerce adoption might continue to affect retail landlords’ cash flows.
With the pandemic's impact waning, mall traffic has rebounded significantly. However, given the convenience of online shopping, it is likely to continue being a popular choice among consumers. Consequently, this might impact the market share for brick-and-mortar stores and hurt demand for Kimco’s properties.
Higher interest rates might increase Kimco's borrowing costs, affecting its ability to purchase or develop real estate. Further, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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