KIMCO Q3 EARNINGS: A STRONG QUARTER, A STRONGER PORTFOLIO
Q3 was yet another strong quarter for Kimco. We moved ahead with our plan to focus on our U.S. properties by selling non-domestic shopping centers, we continued disposing of lower-tier assets, and we made significant headway with our $1.1 billion redevelopment pipeline. Also during the quarter, Kimco was inducted into the Dow Jones Sustainability Index. We are proud to be the only retail REIT in the index, and our inclusion highlights our commitment to establishing the company as a corporate responsibility and sustainability leader.
Let’s look at a few key metrics in Q3:
- Funds from operations (FFO) was $0.40 per diluted share in Q3, $0.03 above consensus.
- Anchor box stores in the U.S. are 98.3 percent leased, up 10 basis points from a year ago. Small shop occupancy is 88 percent, up 100 basis points from a year ago, with overall occupancy at 95.6 percent in the U.S. portfolio.
- Rent spreads for new U.S. leases were up 28.6 percent, and our combined leasing spreads continued to trend over 10 percent.
- Kimco’s Board of Directors increased the quarterly cash dividend by 6.3 percent to $0.255 per common share.
Strong quarter, solid portfolio fundamentals
Kimco’s portfolio is always evolving to remain best in class. The portfolio has seen about $5 billion of retail property sales in the last five years, which has been balanced by close to $5 billion of acquisitions. We have continued to buy out joint venture partners from the properties we love for the long-term, as well as acquire adjacent parcels at our core properties. We now have a very broad portfolio filled with many high-quality properties in excellent long-term growth markets. And, we’re always busy redeveloping our sites in an effort to strengthen the portfolio.
Kimco has 26 property sales pending in Canada right now, expected to be completed next year. Our exit from Canada will allow us to focus solely on the U.S., where we own and operate nearly all of our properties. Redevelopment is a major part of that renewed focus – here in the U.S., we completed $36.5 million in redevelopments in Q3, with a blended incremental ROI of 9.9 percent.
The essence of the story is that the demand for quality real estate continues to far outweigh supply, and Kimco is well positioned to capitalize on that demand. In short, Kimco’s portfolio is robust, and we continue to pick up momentum as we work to make our portfolio dynamic and offer the best retail experience in the industry.
Rising rental rates and better mom-and-pop performance
Kimco saw year-over-year average base rent per square foot grow 6.2 percent this quarter. That’s good news, and even better news is that many retailers are planning new store openings and trying new store prototypes (Find @ Lord and Taylor and Lemon Pop by Charlotte Russe are two examples), which are pushing up rents even higher. These new stores are unlocking more value in our portfolio.
Occupancy rates across our shopping centers remain in the high 90 percent range. Many of our shopping centers have an established anchor, and we constantly strive to include a diverse group of retailers to complement those anchors. Small shop leasing is also benefitting from more mom and pop retailers opening. These locally owned stores accounted for nearly half of our small shop leases in Q3.
There’s been some talk of a downturn in retail soon – everything is a cycle, after all. If a downturn does occur, it will likely affect every retail REIT out there – no one is immune – however, we remain well positioned in the market with very strong core assets to help us withstand future market cycles.
Be sure to either listen to the earnings webcast or read the transcript for more detail on Kimco’s Q3 earnings.
We’ll return with a fourth quarter analysis in early 2016. Thanks for reading all year, and have a great holiday season!