KIMCO’S FIRST QUARTER 2012 EARNINGS SHOW COMPANY MOMENTUM
If there’s one word to sum up our first quarter performance, it would be “momentum.”
Everywhere you look -- from our NOI and FFO growth, to our positive leasing spreads and improved occupancy, to our continued progress upgrading the quality of our portfolio -- there are signs of momentum in our first quarter results. It all adds up to a very strong start to the year.
By now, many of you have read our first quarter earnings release, but for those who haven’t, we thought it would be a good idea to summarize the highlights here. First, let’s take a look at our key financial results:
- Our net income available to common shareholders was $38.1 million, or $0.09 per diluted share, compared with $14.1 million, or $0.03 per diluted share, for the first quarter of 2011.
- Our funds from operations (FFO) were $126.2 million, or $0.31 per diluted share, up from $122.0 million, or $0.30 per diluted share, for the same period last year.
- Our funds from operations (FFO) as adjusted were $125.9 million, or $0.31 per diluted share, compared with $121.2 million, or $0.30 per diluted share, for the same period last year.
Underlying these solid numbers is the strong performance of our shopping center portfolio.
Shopping Center Operating Results
One of the clearest indications of our momentum is found in our same-property net operating income (NOI) growth. In the first quarter, we delivered a 2.9 percent increase in same-property NOI for our combined (U.S., Canada, and Latin America) shopping center portfolio -- the eighth consecutive quarter in which this key operating metric has risen. Same-property NOI growth was particularly robust in the U.S. The 2.8 increase we saw for the quarter was our highest growth rate in four years.
A big part of our NOI growth is the continued momentum we’re seeing in our leasing spreads -- the difference between the ending rent of an old lease and the starting rent of a new lease on the same space. This is a clear sign of increased demand for retail space -- demand that is being fueled by GDP and population growth, but isn’t being satisfied with much new retail construction.
On a pro-rata, cash basis, our U.S. leasing spread for new leases, renewals, and options increased 10 percent for the quarter. In terms of new leases, the spread grew 39.8 percent, driven in large part by a new lease we signed with Target for 6.4 times the previous annual base rent at our Richmond Shopping Center on Staten Island, N.Y.
Excluding this lease, the spread on new shopping center leases in the U.S. still grew 9.2 percent, the highest level since the second quarter of 2009. Meanwhile, the leasing spread on renewals and options increased 4.2 percent.
In the first quarter, gross occupancy was 93.1 percent, up 30 basis points, for the combined portfolio, and 93.0 percent, up 50 basis points, for the U.S. portfolio, reflecting an increase from the first quarter of 2011, attributable to net absorption and the positive impact of divestitures.
Importantly, gross occupancy of small-shop space (under 10,000 square feet) held steady at 83 percent from the fourth quarter and an increase of 130 basis points from the prior year. We are working hard to improve our small-shop metrics, including introducing our KEYS program to help entrepreneurs develop new retail businesses, and our FastTRACK Franchise program to streamline the site-selection process for both franchisors and franchisees.
Our investment activity for the quarter reflects the steady progress we’re making on our strategy to upgrade the overall quality of our portfolio. This effort includes selling non-strategic shopping centers, reducing non-retail holdings, and selectively acquiring high-quality shopping centers in our key markets.
In the U.S., Kimco acquired two shopping centers -- Woodbridge Shopping Center in Sugar Land, Tex., and Bell Camino in Sun City, Ariz. -- and one outparcel in Olympia, Wash. for its wholly owned portfolio. We purchased these properties, which cover 165,000 square feet of leasable space, for approximately $18.6 million. In addition, we acquired the remaining 85 percent interest in two grocery-anchored shopping centers, comprising 365,000 square feet from an existing institutional joint venture, for a gross price of $75.5 million.
The company was actively investing north of the border in Canada, where Kimco purchased a 50 percent interest in Orleans Gardens Shopping Centre in Ottawa, Ontario; and increased its ownership interest to 90 percent in an existing Canadian shopping center, all for a total investment of approximately $18.4 million.
We also announced another Canadian acquisition the day after we announced our first quarter earnings. Kimco purchased with Anthem Properties, a 140,000-square-foot shopping center in Edmonton, anchored by Sobeys, Canada's second largest food retailer. Canada continues to be one of our most important markets, with strong retailer demand for space reflected in our 96.6 percent gross occupancy rate.
We also continued to divest non-retail assets. During the quarter, we sold $28 million of investments in our non-retail portfolio, bringing the total value of this portfolio down to $485 million, or only 4.2 percent of our total assets.
We also sold 13 consolidated non-strategic properties -- shopping centers that are outside our primary operating markets, don’t fit our desired asset profile, or have limited opportunity for growth or repositioning. Sold for $95.9 million, these properties total nearly 1.2 million square feet.
Since initiating our portfolio-enhancement program in September 2010, we’ve sold 53 non-strategic properties for $289.3 million, while acquiring 29 high-quality shopping centers, almost all located in our core U.S. markets or Canada, for $711.9 million.
Dividend and Capital Structure
Our board of directors declared a quarterly cash dividend of $0.19 per common share, payable on July 16, 2012, to shareholders of record on July 5, 2012.
We also issued $400 million of 6 percent perpetual preferred stock in March. We plan to use at least $225 million of the proceeds to reduce our outstanding revolving credit borrowings, and the balance to redeem shares of the company’s preferred stock when they become callable in October.
It’s also worth mentioning that just after the quarter’s end, Kimco closed a $400 million unsecured term loan, priced at LIBOR plus 105 basis points. Proceeds of this loan are for general corporate purposes, including repayment of upcoming bonds and mortgage maturities.
Kimco’s consolidated net-debt-to-EBITDA ratio, as adjusted, was 5.4x in the first quarter, compared to 6.2x at the same point last year. In addition, the company maintains access to approximately $2 billion of immediate liquidity.
Looking ahead for 2012, Kimco’s full-year guidance for FFO as adjusted is in the range of $1.22 - $1.26 per diluted share. We remain focused on our core goals of selectively acquiring high-quality retail properties, continuing to divest non-strategic shopping center assets, reducing non-retail and non-strategic investments, continuing to lease up our Latin America properties, and strengthening our balance sheet.
For more details on Kimco’s quarterly earnings results, see our first quarter 2012 earnings release and our conference call transcript.