KIMCO REALTY FINISHES 2012 ON A HIGH NOTE
Kimco Realty capped off a solid 2012 with a fourth quarter performance that beat analyst expectations, as the company continued to make progress on its strategic objectives and deliver improved operating results amid stronger demand for retail space.
Our reported funds from operations (FFO) as adjusted -- a widely used supplemental measure of REIT performance -- came in at $0.33 per diluted share in the fourth quarter, up 10 percent over the prior year. The market reacted positively to the news, bidding up our shares by more than 1 percent on the first full day of trading after we announced our results.
For the full year, reported FFO as adjusted was $1.26 per diluted share, compared with $1.20 per diluted share in 2011. Our total return to shareholders in 2012 was almost 24 percent -- a very rewarding year.
You can read more about Kimco’s fourth quarter performance in this story from MarketWatch and in our earnings release.
Beyond our fourth quarter results, we’ve also continued to make progress this past year rebalancing our portfolio for greater growth and value (see details later in this post). One of our biggest headlines came last month when we announced Kimco is part of a consortium buying five grocery banners -- Albertsons, Acme, Jewel-Osco, Shaw’s, and Star Market -- encompassing 877 stores, from Supervalu Inc.
We think shopping centers are a great business to be in these days. Demand for retail space is steadily increasing, with store openings hitting multi-year highs as population and consumer spending continue to expand. Yet supply remains tight, with virtually no new development on the drawing boards. That all equates to accelerating growth in effective rents and occupancy rates. Even small-shop occupancy is improving -- a sign that things are, indeed, looking up.
Shopping center operating results
The proof is in our operating numbers. Look at these metrics for the fourth quarter:
Same-site NOI: Our NOI winning streak continues. Combined (U.S., Canada, Latin America) same-site NOI was up 3.4 percent, the 11th consecutive quarter of growth, and the biggest increase we’ve seen since the fourth quarter of 2007. In the U.S. alone, NOI was up 3.1 percent.
Occupancy: Occupancy continues to climb, and momentum is accelerating. For our combined portfolio it was 93.8 percent, up 70 basis points over last year and 40 basis points from the third quarter. In the U.S., it was 93.9 percent, up 80 points from last year and 50 points from the previous quarter. Even better news: Small-shop occupancy was up 170 basis points from last year, at 84.2 percent.
Leasing Spreads: Our leasing spreads -- the difference between new and old rents for the same space -- continue to be positive, another sign of strong demand. In the U.S., the spread was 11.8 percent. Rents on new leases were 25.5 percent higher; on renewals and options, they rose 6.1 percent. On new leases, we’re benefiting from turnover in leases signed more than 20 years ago at what are now below-market rents. As mentioned on our earnings call, Kimco has more than 1,000 such leases, so there’s plenty of upside remaining to be captured.
On the international front, our portfolio in Canada continues to enjoy high occupancy and strong demand. Target, a key retailer for us, will soon be opening its first Canadian store in Kimco’s Danforth center in Toronto. It will be the first of 25 openings a quarter the retailer has planned this year -- a real transformational move for the Canadian retailing industry.
In Mexico, lease-up activity continues to be strong, and there’s a lot of investment money suddenly flowing into quality real estate, driving property values higher. But as for the rest of Latin America, we have decided to monetize our South America portfolio (two projects in Brazil, two in Peru, and 11 in Chile). Going forward, we’d rather focus all of our efforts on North America.
Our strategy is to focus on the top markets, investing in key territories in the U.S. that have the strongest demographics, limited retail per capita, high barriers to entry, larger-size properties and greater population density. Over time, to help fund those investments, we’ll be selling properties outside our key markets, while still keeping an eye on areas that have future growth potential.
During the fourth quarter, our quality trade-up continued. But for true perspective, let’s take a look at our activity since September 2010, when we first unveiled our portfolio recycling strategy.
Since then, we have sold 108 U.S. retail properties for gross proceeds of $825 million, while buying 52 higher quality properties for a gross price of a little over $1 billion. Our newly acquired centers have a pro-rata occupancy of 95.0 percent, average base rent of more than $14 a square foot, and average household income of $92,000. Those we sold have a pro-rata occupancy of 85.4 percent, rent of $8.75, and income of $65,000.
Our disposition activity in 2012 was double the pace of the previous year, and we’re looking to sell another 60 to 75 properties in 2013, as we continue to strengthen an already solid portfolio.
Dividend and capital structure
During 2012, we took every opportunity to maintain our healthy balance sheet and liquidity position by accessing cheaper money in the capital markets. In all, we issued $800 million of perpetual preferred stock, at a blended coupon of 5.78 percent, and redeemed $635 million of such debt with a blended coupon of 7.45 percent. We also paid off $199 million in senior unsecured notes. Net-net, we’re saving approximately $13 million in annual carrying charges, or $0.03 a diluted share.
As far as balance-sheet metrics, our net-debt-to-recurring-EBITDA ratio is 5.7 times, better than the goal of 6.0 times we established at our 2010 Investor Day, and our go-forward target is between 5.5 and 6.0 times, with a fixed-charge coverage ratio of at least 2.5 times. Further, our immediate liquidity position is very strong, at over $1.4 billion.
Looking ahead, our full-year guidance range for FFO as adjusted is $1.28 - $1.33 per diluted share in 2013. Operationally, we expect to increase our combined portfolio occupancy by 50 to 75 basis points, and increase our same-property NOI by 2.5 to 3.5 percent.
For more details on the fourth quarter and full year, I invite you to listen to a replay of our investor conference call (available until 9 a.m. EST on March 7, 2013) or download the transcript of the call here.