News & Trends

Kimco’s Q2 earnings: Healthy growth in the second quarter of 2014

Posted by: Dave Bujnicki Dave Bujnicki
on August 18, 2014

Bolstered by a healthy retail sector and a corporate strategy with proven results, Kimco has reported very favorable earnings for the second quarter of 2014. Strong financial and operational returns in the period ending June 30 reveal a company that is successfully capitalizing on current opportunities while reinforcing its potential for long-term growth.

As Kimco CEO Dave Henry discussed on our earnings call last month, our operating metrics continue to be excellent, led by increases in occupancy and our 16th straight quarter of solid leasing spreads for both new leases and renewals. The ongoing transformation of our portfolio has also improved demographics and yielded higher rents, amounting to a superior set of retail properties with robust projected net operating income (NOI) growth and significant redevelopment opportunities. By the numbers:

  • Pro-rata occupancy in both the U.S. and combined (including Canada and Latin America) portfolios increased 110 basis points over the second quarter of 2013 to 95.0 percent and 94.8 percent, respectively.
  • U.S. shopping center portfolio pro-rata occupancy for anchor space (10,000 square feet and greater) was 97.8 percent in Q2, an 80 basis-point increase from the same period last year. The pro-rata occupancy for small-shop space increased 200 basis points to 86.3 percent.
  • U.S. same-property NOI increased 2.5 percent.
  • Pro-rata rental-rate leasing spreads increased 9.7 percent on U.S. properties, with rental rates for new leases up 13.3 percent and renewals/options increasing 8.2 percent.
  • Reported funds from operations (FFO) of $0.34 per diluted share and FFO as adjusted of $0.35 per diluted share. In addition, the board of directors approved the payment of our quarterly cash dividend of $0.225 per common share.

Additional financial details for Kimco’s Q2 are available here.

Transactions

The approach that has positioned Kimco so well for the present and future is based on a strategy we call TSR+, which stands for Transformation, Simplification, and Redevelopment. Our “plus” business entails highly selective investments in retailers who own much of their real estate. These small but very profitable investments have been part of our company for several years, providing synergies, knowledge, and experience dealing with retailers of all stripes.

In the second quarter, the transformation of our portfolio was highlighted by our acquisitions and dispositions, including:

  • The acquisition of a 24-property retail portfolio in New England for a total purchase price of $270 million, with $120.5 million of mortgage debt. The New England portfolio is 96 percent occupied and comprised of properties in Massachusetts, Connecticut, and New Jersey with a diverse tenant mix featuring Whole Foods, Trader Joes, Lowes, CVS, and Walgreens.
  • The sale of our ownership interest in 15 U.S. properties totaling 1.7 million square feet for a gross sales price of $185.6 million, including $23.3 million of mortgage debt. Kimco’s share of the proceeds from these sales was $121.5 million.
  • Another 50 properties are currently under contract for sale with a collective value of approximately $363.9 million.

Simplifying our business model has also involved our commitment to reduce the number of properties we hold in joint ventures. Last quarter, Kimco acquired the 60.9 percent interest remaining in the 12-property Kimco Income Fund I (KIF I) portfolio from its joint venture partners for a gross price of $408 million, including $38.2 million of mortgage debt. Since the bottom of the recession in 2009, Kimco has purchased full equity ownership in 88 properties totaling $2.3 billion in gross value from existing joint venture partners, inclusive of the post-Q2 acquisition of a 10-property portfolio from joint venture partner SEB Asset Management.

Kimco is on track to sell essentially all of our Latin America properties by year’s end. The market for Mexican REITs is especially strong.

  • In Q2 we completed sales of four Mexican retail properties for gross sales of $82.1 million, with Kimco’s pro-rata share of proceeds totaling $53.3 million.
  • Including the sale of the three Mexican properties in Q3, Kimco has sold a total of 127 properties in Latin America comprising 20.5 million square feet for a gross sale price of $1.5 billion, since May 2013.

State of the market

Capitalizing on optimistic market trends was key to our second-quarter success. Fundamentals in the retail industry remain strong, with effective rents and occupancy rates improving across the board. Big retailers continue to expand in the face of population growth, positive GDP, and limited supply of new retail space.

Overall, it’s encouraging to note that retail sales per person have increased by 16 percent from the prior peak in 2008. Consumer confidence is at its highest since October 2007, and retailers are optimistic about the upcoming back-to-school shopping season.

Despite widely held misconceptions about online shopping supplanting brick-and-mortar business, national retailers have found effective online strategiesto complement their physical store presence. Even the top three retailers in online sales growth — Macy’s, Walmart, and Apple — all have physical stores. We believe most of our retail tenants are firmly in the internet-resistant category as they fall under necessity-based goods and services. Services alone account for two thirds of consumer spending today; the nation’s restaurants, grocers, nail salons, urgent care facilities, and health clubs all provide services that are very difficult to recreate through ecommerce channels.

On balance, we’re very encouraged by the success of our transformative strategies to date. Kimco enters the second half of the year confident that we will make further strides toward fulfilling our vision to increase stability and add value in the near and distant future.

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