KIMCO’S Q1 EARNINGS: HITTING THE GROUND RUNNING
As we mentioned in our recent media coverage post, 2015 is off to a strong start: Kimco’s revenue rose to $283.5 million, from $228.2 million in Q1 2014, and we had a strong quarter on all fronts, including leasing, acquisitions, dispositions, redevelopments, and capital raising.
It was at our 2010 investor day that we announced our plan for a grand transformation. The results of Q1 2015 show that five years of planning and hard work have paid off: Kimco has bought and sold $5 billion of properties, and we continue adding quality assets and tenants, while redeveloping our top-tier properties in the best markets. Throughout the U.S., we continue improving our shopping centers through strategic redevelopment projects, and today, our properties are higher quality, have significant growth prospects, and are better positioned to adjust to market and location dynamics.
Plus, lower gas prices are expected to boost consumer spending, and the middle class’s purchasing power should benefit neighborhood and community shopping centers anchored by grocery stores and discount retailers.
Here’s an overview of Kimco’s Q1 results and other important metrics:
- Continued same-site NOI growth: U.S. same-site net operating income (NOI) rose 3.2 percent compared to the same period in 2014. This strong NOI growth was achieved primarily by top-line revenue growth generated from increased occupancy.
- Raised $1 billion of capital: Closed a $650 million unsecured term loan priced at 95 basis points over LIBOR and issued a new $350 million 30-year unsecured bond with a coupon of 4.25 percent.
- Positive leasing and high rents: Q1’s leasing spreads were strong with a 19.1 percent increase on new leases signed, and 8.1 percent for renewals and options, bringing combined leasing spreads to 10.1 percent for the first quarter. New leases are being signed at an average of $17.35 per square foot, 24 percent more than current average base rents nationally.
- Funds from operations (FFO) increase: FFO per diluted share rose 8.8 percent from the same period last year ($0.37 versus $0.34). Kimco’s FFO as adjusted was $147.2 million, or $0.36 per diluted share – an increase of 5.9 percent over the comparable 2014 period.
Those are the numbers, but let’s dive into the details and primary drivers of our Q1 growth.
Historically, Q1 is the most challenging quarter from an occupancy perspective. Despite that fact, we were able to maintain our U.S. pro-rata occupancy from the previous quarter, and our pro-rata occupancy in the U.S. and combined portfolios is 95.7 percent, up 100 and 120 bps, respectively, from a year ago. Plus, small shop occupancy drove that performance, as pro rata occupancy grew to 88.2 percent, a 20 bps increase from Q4 and a 260 bps increase from the prior year’s first quarter. Not an easy feat in the face of Radio Shack’s bankruptcy, which had a 20 bp drag on our small shop occupancy.
Throughout Q1, Kimco remained an active buyer and seller for top-tier properties in major and secondary markets. We also continued our redevelopment projects at select centers.
By purchasing the remaining shares in properties owned by Blackstone for $925 million, we were able to fully consolidate 39 high-quality properties that we have a decade of leasing experience with. These are properties we know, and where we believe growth remains to be seen. Throughout the U.S., we’ve been actively purchasing land parcels or retail properties adjacent to our Tier 1 properties, allowing us to increase leasing leverage in some of our best centers.
On the sell side, we’ve sold three properties in Canada (to our existing joint venture partner) where we can benefit from the low cap rate environment. And, in the U.S., we sold six shopping centers in Q1 for a gross sales price of $54.1 million.
Q1 also saw the completion of 12 redevelopment projects at a cost of $35 million, giving us a return on investment of over 11 percent. Our future redevelopment plans include adding traditional or specialty grocers to Tier 1, power shopping centers. In the quarter, Kimco has completed or has started construction on 12 grocery stores in our centers, including two Whole Foods, two Publix, two Safeways, two Fresh Thyme Farmers Markets, a Stew Leonard's, a Harris Teeter, a Lucky, and a Trader Joe's. These projects elevate our total percent of ABR for grocery-anchored centers to 71.2 percent.
Our open air shopping centers continue to be an area of sizeable opportunity to enhance net asset value, and we continue to transform these properties into top-tier shopping centers. Kimco will continue to focus on improving net asset value through aggressive early terminations, dynamic redevelopment projects, additional grocery components, and smart small shop leasing.
Kimco is increasing its guidance for headline FFO per share to $1.50 - $1.55, from the previous range of $1.45 - $1.53. This headline FFO guidance range includes $32.4 million, or $0.08 per share, gain from the partial monetization of Kimco’s SUPERVALU investment which was completed during the second quarter. The company is also increasing the FFO as adjusted per share guidance range to $1.42 - $1.45, from the initial range of $1.40 - $1.44.
In addition, Kimco maintains its full-year guidance for occupancy of +25 to +50 bps, and U.S. same-site NOI growth, +3 to +3.5 percent.
If you’d like to learn more, you can listen to a recording of the earnings webcast or read the transcript.
We’ll return with second-quarter analysis in the summer. Have a great spring.