News & Trends

Growing occupancy, rents boost Kimco’s Q1 results

Posted by: Dave Bujnicki Dave Bujnicki
on May 16, 2014

Kimco continued to benefit from the positive supply-and-demand characteristics of the current retail real estate market to post strong gains in both occupancy and rents during the first quarter, while also moving forward on its TSR+ strategy for long-term growth.

With new retail construction at historic lows and planned store openings at a five-year high, there is considerable upward pressure on rents for ever-scarcer quality space. And that, as you would imagine, bodes well for Kimco and its high-quality portfolio of neighborhood and community shopping centers.

The positive market dynamics certainly are showing up in our first quarter operating results:

  • U.S. occupancy was 94.7 percent, an increase of 100 basis points compared to the first quarter of 2013. Anchor space occupancy rose 80 basis points, while small-shop occupancy climbed 160 points, a clear barometer of the continued rebound in retail activity.
  • Rents in the U.S. were up significantly as the leasing spread between old and new rents on the same space grew 8.8 percent overall in the first quarter; rental rates on new leases rose 50.7 percent and renewals and options increased 4.6 percent.
  • U.S. same-property net operating income (NOI) grew 2 percent over the prior year, fueled by rent commencements and redevelopment activity, but was held back somewhat by the cost of snow removal.

These strong operating results led to a 6.3 percent increase in funds from operations (FFO) as adjusted in the first quarter. For more details, see our earnings release.

Longer term, we continue to execute against our TSR+ strategy: Transform, Simplify and Redevelop, while making the opportunistic investments that constitute our Plus business.

Transform — Our portfolio transformation continues in full swing. In the first quarter, we acquired two well-positioned properties located in affluent areas of North Carolina for almost $123 million. The first property, Crossroads Plaza, is a dominant power center located in the Raleigh Metropolitan Statistical Area (MSA), which is ranked as one of the fastest growing MSAs according to Forbes. The second property, Quail Corners, is located in Charlotte and grocery anchored by Harris Teeter. The latest example is our purchase of 24 shopping centers, located predominately in the Boston metropolitan market, for $270 million that was completed in April. Since beginning our transformation journey in September 2010, we have acquired 123 higher-quality U.S. properties for $2.8 billion, while selling 158 non-core U.S. properties for $1.3 billion.

Here’s what we’ve gotten in return: Our purchased properties have average pro-rata occupancy 10 percent higher than those we sold; annual base rent is more than 63 percent higher; average household income is 40 percent higher; and population is almost 20 percent higher. That’s quite a trade-up.

We plan to accelerate our U.S. shopping center disposition activity, with targeted sales of approximately $600 million to $700 million in 2014. We’re currently negotiating the sale of 40 shopping centers, and we plan to market 60 others this year.

Simplify — We continue to simplify our portfolio, exiting investments in Latin America, and reducing the number of properties we have in joint ventures. We sold nine more properties in Mexico this quarter and have 36 left in Latin America to sell, likely by the end of the year.

In addition, we continue to reduce our exposure to joint ventures by buying out our JV partners and owning the properties outright. We can buy these properties with less risk, less underwriting, and lower transaction costs than any we can buy on the open market. During the first quarter, we acquired the remaining 89 percent equity interest in three grocery-anchored shopping centers, totaling 316,000 square feet, in the Greater Baltimore area from an institutional joint venture partner. In April, we purchased the remaining 60.9 percent interest in the 12-property Kimco Income Fund I portfolio for a gross price of $408 million. Since September 2010, we have added 27 joint venture properties to our wholly owned portfolio.

Redevelop — Our redevelopment activity is consistent with our quality trade-up philosophy. Rather than buy new properties, we’re investing in the quality and growth of the strongly situated centers we already own. A recent example: Our Tri City Plaza center in the Tampa area is being redeveloped at a cost of $31 million. We are demolishing 90 percent of the center and creating new buildings for LA Fitness, Sports Authority, and numerous restaurants, and expect to achieve incremental NOI of nearly $3 million.

The number of properties in our redevelopment pipeline is increasing, with close to $800 million worth of projects either underway, under design, or being evaluated. The $24 million we spent on redevelopment in the first quarter provided an incremental yield just over 10 percent.

Looking ahead, we expect our high-quality portfolio of neighborhood and community shopping centers to continue producing solid results for our investors. Services represent more than two-thirds of all consumer spending today, and our properties are all about essential goods and services — the kind that are resistant to e-commerce and generate the steady, repeatable foot traffic that equals success.


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