KIMCO REPORTS Q1 EARNINGS: RETAIL BETTER THAN REPORTED
As our CEO Conor Flynn remarked on our Q1 2017 earnings call, “To paraphrase Mark Twain, reports of the death of retail real estate have been greatly exaggerated, and Kimco’s strong first quarter is living proof.” Kimco’s Q1 earnings reflect the many bright spots in today’s retail landscape -- in fact, our leasing volume this quarter was at its highest level in ten years.
In addition, seven of our top 20 retailers have hit all-time highs in their stock prices and many have a large number of planned new store openings. Consumers are spending at record levels, and successful retailers understand that shoppers are mixing their online and in-person business models. For example, Wal-Mart offers discounted services and prices for online orders shipped to a physical store that cannot be matched by an online-only retailer. And stores like Home Depot and Lowe’s are finding the right balance between investing in their online and brick-and-mortar locations.
Here’s a quick overview of this past quarter’s results:
- Net income available to the company’s common shareholders of $65.2 million, or $0.15 per diluted share.
- Signed 497 leases totaling 4.3 million square feet, representing the highest leasing volume of any quarter in the last 10 years.
- Generated 10.9 percent growth in pro-rata rental-rate leasing spreads with new leases increasing 17.9 percent and renewals/options up 10.1 percent.
- Grew same-property net operating income (NOI) 2.2 percent over the same period in 2016.
- Issued $400 million in new, unsecured notes due 2027 at a coupon of 3.80 percent.
Q1 operating property acquisitions totaled $43.1 million and include Plaza Del Prado, a 142,000-square-foot grocery-anchored shopping center in Glenview, Illinois, and a vacant 25,000-square-foot in-line space at our Columbia Crossing center in Columbia, Maryland. We also acquired a 90 percent ownership interest in Philadelphia’s Lincoln Square, a fully entitled, mixed-use development project, for $10 million. Once complete, the project will feature 322 residential units and 100,000 square feet of retail space, of which approximately 80 percent is pre-leased.
In the first quarter we shed eight shopping centers representing 948,000 square feet and one land parcel for a total of $113.2 million.
Net income available to the company’s common shareholders for the first quarter of 2017 was $65.2 million, or $0.15 per diluted share, compared to $129.2 million, or $0.31 per diluted share, for the first quarter of 2016. The decrease was primarily due to $68.9 million of lower gains on the sales of operating properties, net of impairments, attributable to the sale or pending disposition of operating properties. Both gains on sales and operating property impairments are excluded from the calculation of FFO available to the company’s common shareholders (NAREIT FFO).
NAREIT FFO was $155.1 million, or $0.37 per diluted share, for the first quarter compared to $158.2 million or $0.38 per diluted share for the same time last year. NAREIT FFO for the first quarter of 2017 included $0.6 million of transaction charges (net of transactional income). This compares to $5.4 million of transactional income (net of transactional charges) in the first quarter of 2016.
Five years ago, we embarked on a portfolio transformation to improve the quality of our portfolio and focus on areas with significant barriers to entry, higher density and incomes, and strong retailer demand. This transformation has paid off, as our leasing volume this quarter proves. Our top five markets contribute 50 percent of our rental revenues, compared to 35 percent when we started this program.
What we’re seeing today is the “rightsizing” of the retail landscape, as retailers adapt and provide the omni-channel experience that today’s consumers demand. Kimco is adapting as well -- we are adding more health and wellness, more service providers, more food and restaurants, more entertainment, and more experiential retailing -- all critical components that, when combined with grocery, necessity and off-price anchors, will continue to drive traffic to our centers and keep our portfolio resistant to the effects of ecommerce, and keep us in the sweet spot of retail.
A core tenet of our 2020 Vision is our belief that investing in our business and growing organically is the right way to create long-term shareholder value. A major source of organic growth for Kimco is the significant mark-to-market opportunity embedded in our portfolio, as evidenced by our strong leasing spreads. Additionally, we anticipate incremental returns of 9 percent to 12 percent on our redevelopment projects, many of which will create additional flagship assets with high-growth profiles.
You can learn more by listening to the earnings webcast or reading the full transcript.
We’ll see you again soon for Q2 earnings.