KIMCO READY FOR A STRONG RUN IN 2013
Just like the field that charged out of the gate at the recent Kentucky Derby, Kimco has come out strong in 2013, with first-quarter operating results that exceeded expectations.
Our reported funds from operations (FFO) rose 6.5 percent over the prior year, and our same-site net operating income (NOI) climbed 4 percent -- not only our twelfth consecutive quarter of growing NOI, but our highest quarterly increase in five years.
You can read more about Kimco’s performance in our first-quarter earnings release.
Clearly, we’ve picked up where we left off in 2012, and investors, sensing our momentum, continue to be confident in buying our shares. Kimco’s share price has risen almost 30 percent since the beginning of the year, and reached a new 52-week high of $25.09 per share on May 9.
In the wake of our positive earnings report, several investment analysts have increased their 12-month price target on Kimco shares, with one analyst calling our performance “impressive” and another saying Kimco is “executing on many fronts, generating above-average internal growth.”
With that kind of start, and the operating and marketplace horsepower we have behind us, we think we have what it takes to run a very good race this year and cross the finish line in front. We’re so confident of our prospects, in fact, that we have revised our full-year guidance upward. But more about that later.
Shopping center operating results
Conditions, we think, are perfect for a successful run in 2013. Demand for quality space continues to rise amid a lack of new supply. Consumer spending is up, the housing recovery is picking up steam, the population is growing, and plans for new store openings are at a five-year high.
As a result of our efforts to upgrade the quality of our portfolio over the last two and a half years, Kimco is in great shape today to capitalize on these trends.
Here are some metrics from the first quarter that clearly show our high-quality space is in high demand:
Occupancy: In our combined portfolio, occupancy rose 70 basis points over the first quarter of 2012, to 93.6 percent, while in the U.S., the growth was 90 basis points, to 93.7 percent. In small-shop space (under 10,000 square feet), occupancy climbed 170 basis points, continuing a trend that bodes well for the retail sector and the overall economy.
Leasing spreads: During the quarter, we signed nearly 700 new leases, renewals or options totaling 3.7 million square feet across our portfolio, a particularly strong performance. In the U.S., the difference between new and old rents for the same space -- known as the spread -- rose 13.5 percent on new leases, and 2.7 percent on renewals and options. We’ve seen growing lease spreads for nine consecutive quarters now, enough to say the recovery in rents appears to be self-sustaining. Better still, we have plenty of upside in our portfolio from leases that were signed more than 20 years ago at what are now below-market rents. These properties represent about 14 percent of our gross annualized rental income, and as they turn over, we expect they will command significantly higher rents.
Higher rents and occupancy, along with improvements in our portfolio and the overall economy, are the story behind our growing NOI in the first quarter -- the best growth we’ve seen since the fourth quarter of 2007. NOI in the combined portfolio was up 4.0 percent compared to the same period in 2012, while in the U.S., it grew 3.7 percent.
Kimco continued to forge ahead on efforts to rebalance its portfolio for enhanced growth and quality. The first quarter was an active one that saw us sell two shopping centers and enter into contracts to sell 14 others that no longer meet our criteria in the U.S. At the same time, we acquired four retail properties and increased our ownership interests in four others, either by buying out our joint-venture partners, or in the case of a Canadian property, converting a preferred equity investment into a pari passu joint venture.
One of our acquisitions was the second phase of a large grocery-anchored shopping center complex in Wilton, Connecticut. This purchase will give us maximum flexibility to renovate and expand the property, which serves an affluent community with an average household income of more than $240,000.
Furthermore, we nearly doubled our interest in the Kimco Income Fund joint venture, to 29.8 percent, and completed the Cerberus-led acquisition of Supervalu’s Albertsons, Acme, Shaw’s, Jewel-Osco, and Star Market supermarket banners. We’re also close to completing our joint venture with Blackstone to acquire 39 high-quality shopping centers from the UBS Wealth Management Fund.
Our institutional partners continue to be a terrific source of prime acquisition targets as we seek to simplify our business model by owning more shopping centers outright, and our partners look to monetize their investments.
In Latin America, following the close of the quarter, we entered into an agreement to sell nine shopping centers in Mexico to a local operator. The sale, which will result in a substantial gain, comes as we look to take advantage of a suddenly vibrant retail capital market in Mexico and sharply rising prices for high-quality properties there.
In South America, we are actively marketing our 15-property portfolio, and already have tentative agreements in place to sell some of them to local operating partners. As mentioned previously, we’re looking to exit South America because we lack the scale and efficient tax structures to continue our expansion there.
On the non-retail side, in New York City we sold a property located in the Bronx and expect to sell two properties in Manhattan in the second quarter. We also expect to close on the previously announced sale of our InTown Suites portfolio of extended-stay properties during the second quarter. By the end of 2013, we will have essentially completed the sale of our non-retail assets so that we can focus on our core competency of owning and operating high-quality neighborhood and community shopping centers in North America.
Since we announced our portfolio recycling program in September 2010, we have sold 110 U.S. properties for $835.6 million, and purchased 64 higher-quality properties for roughly $1.5 billion. The market continues to improve for B properties in secondary markets, so look for us to close numerous additional sales over the balance of the year as we continue our quality trade-up.
Dividend and capital structure
Kimco’s Board declared a quarterly cash dividend on our common shares, as well as dividends on four classes of preferred shares. See our earnings release for more details.
On the capital front, we continue to make significant progress refinancing maturing debt, both on the consolidated balance sheet and in our joint-venture programs. Our liquidity position remains strong, with more than $1.2 billion of immediate availability.
Given our strong start to 2013, we have increased our same-site NOI growth forecast for the year by 25 basis points, to a range of 2.75 percent to 3.75 percent. In addition, we are increasing the lower end of our guidance on FFO as adjusted from $1.28 to $1.29 a diluted share, bringing our expected range to $1.29 to $1.33.
For more details on the first quarter, please listen to a replay of our investor conference call (available until 9:00 a.m. EDT on June 3, 2013) or download a transcript of the call here.