KIMCO’S Q1 EARNINGS: “FIRING ON ALL CYLINDERS”
Kimco set a course for 2020 and we’re off to a great start. Q1 was another strong quarter for Kimco, and its highlights show that we’re executing on every aspect of the 2020 Vision strategy. Though short-term earnings are very important, we have our sights set on creating long-term value for our shareholders and all employees.
Here are some of the key performance metrics from Q1, as relayed by Kimco management during last month’s earning announcement:
- Funds from operations (FFO) per diluted share increased 2.7 percent in Q1 over the same period in 2015.
- U.S. occupancy rates stood firm at 95.8 percent. Small-shop (categorized as under 10,000 square feet) now sits at 88.6 percent, which is a 40 basis point increase from Q1 of 2015 with anchor occupancy holding at a solid 98.2 percent.
- New leases increased 19.1 percent at an average base rent of nearly $20 per square foot, and Kimco’s average base rent now stands at $14.67, a 4.8 percent increase over Q1 2015.
Planning ahead with 2020 Vision
A crucial leg of our 2020 Vision is a U.S.-focused portfolio with the best properties in the strongest major metro markets. That includes moving out of Canada by the end of 2016. In the first quarter we completed the sale of seven shopping centers in Canada totaling USD $322.9 million. The majority of our remaining Canadian portfolio is either under contract or in the process of negotiating sales agreements. Additionally, we sold six U.S. properties, totaling 767,000 square feet, in the U.S. for a gross sales price of $107.6 million. We fully expect to hit our target of $400 million to $475 million of dispositions in the U.S. and $425 million to $500 million in Canada by the end of 2016.
Also during the first quarter, Target purchased a 9.2-acre land parcel for a gross sales price of $6.1 million, with plans to build an anchor store at our Houston-area Grand Parkway project.
In April, we acquired the remaining 45 percent of our joint-venture stakes in Florida’s Oakwood Plaza and Dania Pointe for a gross purchase price of $299.2 million. Those two properties are key building blocks to the long-term strategy of creating value on larger assets and markets with high entries. For a point of reference, Oakwood is now our #2 NOI producer, and upon stabilization Dania is expected to be the #1 NOI contributor in the entire portfolio.
Why redevelopment unlocks future value
Another component of this long-term vision is through active redevelopment. Generally, redevelopment remains our best use of capital. Specifically, Kimco's $1 billion pipeline continues to cycle more projects into the pipeline that are “actionable” as new opportunities arise within our portfolio. In Q1, our completed redevelopment projects delivered incremental NOI of $2.3 million, with an ROI of 11.5 percent.
This “raw material” lets us focus on value creation, which has given rise to a shadow pipeline of future redevelopment projects to the tune of $2 billion dollars. As Kimco CEO Conor Flynn said on the Q1 earning’s call, “We are firing on all cylinders as we drive towards achieving our 2020 Vision and focus on long-term shareholder value.”
Understanding the retail trends
Kimco’s Q1 occupancy rate of 95.8 percent proved that many retailers seek a brick and mortar presence. Kimco also executed a number of new deals with big-box retailers, grocery stores, and off-price retailers in Q1, all of which further enhance the merchandising mix and improve the net asset value of our shopping centers.
Our occupancy rate also validates the strength of our portfolio and how well we closely monitor the health of our tenants. And, with a 38-year low in new supply, Kimco remains positively positioned to reposition any stores it may recapture in the near term.
Today, Kimco's average base rent is $14.67, an almost 5 percent increase from Q1 last year, and 27.9 percent over Q1 2010. This is another metric that speaks to the quality of our shopping centers, and rents may increase further as we see more demand from anticipated big-box space openings.
“We continue to march toward our 2020 Vision of being a U.S.-focused REIT, with large pockets of concentration in high barrier to entry markets,” said Conor Flynn, during the company’s most recent earnings call. “The team is working overtime to unlock value at the property level through lease up and mark-to-market opportunities.”
If you’d like to know more, you can listen to the earnings webcast or read the full transcript online.
I hope everyone is having a lovely and sunny spring. Thank you for reading, and we’ll reconnect in the summer.