Kimco Beats FFO Estimates - Analyst Blog

Kimco Realty Corp. (KIM), a leading real estate investment trust (REIT), reported third quarter 2010 rental revenues of $210.5 million compared with $190.1 million in the year-earlier quarter – an increase of 10.7%. However, total revenues for the reported quarter fell short of the Zacks Consensus Estimate of $214 million.
 
Kimco reported third quarter 2010 FFO (fund from operations) of $110.5 million or 27 cents per share compared with $112.5 million or 30 cents in the year-ago period. Fund from operations, 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. The third quarter 2010 FFO marginally beat the Zacks Consensus Estimate by a penny.
 
Excluding certain non-recurring items, FFO for the quarter was $114.5 million or 28 cents per share compared with $110.8 million or 29 cents in the year-earlier quarter.
 
Overall occupancy in Kimco's combined shopping center portfolio was 92.7% at the end of the quarter, an increase of 30 bps compared with third quarter 2009. In the U.S. portfolio, occupancy was 92.3% as on September 30, 2010, an increase of 40 bps compared with the year-ago period.

Same-store net operating income (cash-basis, excluding lease termination fees and including charges for bad debts) in the U.S. portfolio increased 2.2% year over year.

During the quarter, Kimco executed a total of 637 leases spanning 1.6 million square feet. Leasing spreads in the U.S. portfolio increased 1.5% (cash basis).

The company acquired Riverplace Shopping Center, a 257,000 square feet unencumbered shopping center asset in Jacksonville, Florida, for $35.6 million. The property is currently 95.6% occupied and is anchored by leading retailers such as The TJX Companies, Inc. (TJX) and Sears Holdings Corporation (SHLD).

Kimco sold five consolidated non-strategic shopping center properties spanning 990,000 square feet during the quarter for a total of $97.9 million, including $81.0 million of mortgage debt. During the quarter, Kimco and its joint venture partner BIG Shopping Centers, an Israeli publicly traded company, acquired five unencumbered properties for approximately $30.0 million.

The properties totaling approximately 508,000 square feet, includes three centers in California and two in Nevada. Kimco has a controlling stake of 50.1% in the joint venture, while BIG owns the remaining.
 
The reported quarter also saw the company recognizing $9.1 million of fee income related to its investment management business, including $8.0 million in management fees, $0.1 million in acquisition fees and $1.0 million in other ongoing fees.

Kimco had 286 properties in investment management funds with 24 institutional partners at quarter-end. During the quarter, the company generated $26.3 million of income from its structured investments and other non-retail assets, out of which $19.5 million was recurring in nature.

Kimco increased its quarterly dividend by 12.5% to 18 cents per share. During the quarter, the company issued $300 million of 7½-year unsecured senior notes due 2018 at a coupon of 4.30% per annum.

Kimco utilized the net proceeds of approximately $297.1 million from the debt offer to repay a $25 million 7.30% medium term note that matured in September 2010 and prepay two medium term notes totaling $250 million scheduled to mature in 2011.

At quarter-end, the company had $158.1 million of cash and cash equivalents. In addition, Kimco had $1.5 billion available under its revolving credit facilities. The company raised its fiscal 2010 FFO guidance from $1.14 – $1.18 per share to $1.17 – $1.19.

For fiscal 2011, the company expects recurring FFO in the range of $1.17 – $1.21 per share. We maintain our Neutral recommendation for the long term on the stock, which presently has a Zacks #3 Rank translating into a short-term “Hold” rating.