KIMCO’S Q2 EARNINGS: CONTINUING ON OUR PATH FORWARD
Sometimes it’s called business as usual, but Kimco’s Q2 performance was really another step on our journey down the course we initially laid out in 2010.
Kimco continued our strategic initiatives in Q2 by redeveloping prime properties and capitalizing on the healthy disposition market to sell properties both in the U.S. and abroad. Many of our retailers and open-air centers are seeing aggressive expansion, and U.S. occupancy rates remain high. Small shop occupancy and strong anchor absorption helped expand overall U.S. occupancy over the prior year.
Here’s an overview of some key metrics in Kimco’s Q2 results.
- Headline funds from operations (FFO) per share rose to $0.44, which represents a 29.4 percent increase over the $0.34 level in Q2 of last year. We’re increasing our headline FFO per share guidance range to $1.52 to $1.56, from the previous per share range of $1.50 to $1.55.
- FFO as adjusted, or recurring FFO, which excludes non-operating impairments and transactional income and expense, was $0.37 cents for the second quarter, up from $0.35 cents in the second quarter last year, a 5.7 percent increase. Based on our strong first half results and expectations for the second half of the year, we were able to raise our FFO per share guidance range for the full year.
- We saw another strong quarter of U.S. same-site NOI growth, increasing by 3.7 percent. This increase was driven by minimum rent increases and better credit loss results, and our guidance for same site NOI for this year remains at 3 percent to 3.5 percent.
- Our portfolio’s Annualized Base Rent (ABR) per square foot is up 6.1 percent year-over-year. This quarter, ABR rose to $14.13 per square foot, and new leases are being signed at $22.00 per square foot.
Now, let’s examine some of the details.
Anchor tenants and rising rents
Kimco’s U.S. portfolio maintained an occupancy rate of 95.7 percent, driven by a 170 basis point improvement in small shop occupancy from the prior year. Anchor occupancy also rose to 98.4 percent through large deals with grocers, fitness centers, and flagship retailers. Overall, our occupancy in Q2 increased 70 basis points from last year.
U.S. leasing spreads also are rising, as new leases and renewals and options now sit at 26 percent and 8.7 percent, respectively. Overall, U.S. portfolio pro-rata rental-rate leasing spreads increased 11.9 percent in Q2.
And rents in the portfolio continue to grow; in Q2, rents rose 6.1 percent year over year. Overall, Kimco leadership is bullish on the fundamentals of our open-air retail properties and the markets we're focusing on. Brick-and-mortar stores continue to reign supreme. To find proof, examine occupancy rates, rents, leasing spreads, and renewals.
We can’t rest on our laurels, and strong leadership and support from all of our employees has helped move our strategic initiatives forward.
Buying, selling, and redeveloping
Buying high-quality, open-air centers remains ultracompetitive throughout the country. We continue looking for the right properties, and we’ll act when we see these opportunities, but we believe redevelopment and very strategic development is the path to stay on.
Our national retailers continue expanding, which is resulting in higher occupancies, more redevelopment projects, and select new development in certain markets. We’re very cautious about new development opportunities: typically, they exist in our core markets, complement our long-term, tier-one portfolio, and bring in good returns. But, land costs and competition with multifamily development means that we must work very closely with retailers to secure a vibrant tenant mix.
In Q2, Kimco finished 11 redevelopment projects, where we added a number of quality retailers to existing centers. We began seven projects as well, and will be continuing with our trend by adding grocers in a handful of these locations.
Further asset recycling
Kimco continues to sell our lower-tier retail assets, as well. In Q2, Kimco sold 13 properties that were fully occupied, and the sale generated $92 million in Kimco share proceeds. We have another 28 properties under contract for $170 million, 15 accepted offers worth $136 million, and another 18 on-the-market assets. Cap rates in the disposition market continue to narrow, and we view the market as very healthy and ready to do business.
Looking outside of the U.S., Q2 was an important quarter for Kimco. We sold the remaining shopping center assets we had in Mexico, and will expand sales of properties in Canada. We’re being very selective in our sales in Canada in order to achieve our year-end debt target without issuing new equity.
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 third-quarter analysis in the fall. Enjoy the rest of your summer.