Kimco Realty Group: One Downgrade, One Upgrade, Which One Is The Right Call?

Who: Kimco Realty Corp KIM  is a Jericho, NY-based retail REIT that owns and operates 567 open-air properties with 101 million square feet of leasable space and ground leases. Kimco Realty was founded in 1958, is a member of the S&P 500 and has traded on the New York Stock Exchange since 1991. Its second-quarter occupancy rate was 96.2%.

Kimco Realty's lease terms run the gamut from less than five years to 30 years or longer. There are presently over 5000 different tenants, and only 10 tenants have annual base rent (ABR) exposure of over 1.0%. 82% of its Annual Base Rent (ABR) is from top metro markets on the East and West coasts.

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What: On August 16, Raymond James analyst RJ Milligan upgraded Kimco Realty Group from Market Perform to Strong Buy and announced a $25 price target.

However, on August 19, Mizuho analyst Haendel St. Juste downgraded Kimco Realty Group from Outperform to Neutral. And yet, the analyst simultaneously raised the price target 15% from $20 to $23. Three other analysts have recently rated Kimco Overweight or Outperform, with price targets between $23 to $29 per share.

Recent Earnings: On August 1, Kimco Realty reported second-quarter operating results. FFO of $0.41 per share beat the consensus estimate by a penny and topped its Q2 2023 FFO of $0.40. Kimco's revenue of $500.23 million was better than the consensus estimate of $497.79 million and easily beat its Q2 2023 revenue of $442.84 million.

Recent News: On July 17, Kimco Realty announced it upsized its Term Loan Facility from $200 million to $500 million across several banks including the original lender, TD Bank, N.A. The loan fixes a new blended term of 4.78%. Proceeds will be used for general corporate purposes and to reduce outstanding borrowings from Kimco's unsecured revolving credit facility.

Performance: Kimco has traded between $15.68 and $23.87 since the beginning of 2022. Shares are 12.60% higher year-to-date.

Dividend: Kimco Realty pays a quarterly dividend of $0.24 per share and the $0.96 annualized dividend yields 4.30%. Its payout ratio is quite modest at 60% and the price/FFO rating of 13.89 is in line with the sector median of 13.65.

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Takeaway: Analyst Milligan said, "We continue to be bullish on the REITs in general and view the shopping center REITs as one of the more attractive sub-sectors". The analyst feels it trades at an NAV and multiple discount versus the broader REITs, while earnings growth is accelerating.

However, analyst St. Juste thinks the stock has reached its full value, and noted, "the slowing macro and consumer-related risks are hard to ignore."

So who is right and who is wrong?

Milligan upgraded Kimco not one, but two levels, skipping over Outperform to rate it a Strong Buy. And although St. Juste downgraded the stock, he likes it enough to have raised the price target by 15% and admits it may have more room for growth. Three other analysts rate it either Overweight or Outperform.

The second quarter operating results were strong, the dividend yield is still over 4%, the payout ratio leaves room for further hikes and the P/FFO rating is in line with retail peers.

So what's not to like? Score this one a win for the Raymond James team.

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