KIMCO’S Q2 EARNINGS: FOCUSING ON OUR STRENGTHS
Kimco’s Q2 marked another step toward our 2020 Vision. Our strategy continues to rely on quality assets with long and short-term growth in key demographic areas. Over the first half of 2016, Kimco reduced joint ventures and non-core market ownership while strengthening our U.S. portfolio through key acquisitions as well as development and redevelopment projects.
Here’s an overview of some key metrics in Kimco’s Q2 results.
- U.S. pro-rata occupancy increased 20 basis points over Q1 to 96.0 percent, the company’s highest occupancy rate since the fourth quarter of 2007; pro-rata small shop occupancy improved to 89.2 percent.
- Net income available to the common shareholders for the second quarter was $191.9 million, or $0.46 per diluted share, compared to $112.4 million, or $0.27 per diluted share, for the second quarter of 2015.
- Income from continuing operations increased 63.8 percent for the second quarter compared to the same period in 2015.
- Same-property net operating income (NOI) increased 3.1 percent for the second quarter compared to the same period in 2015.
- FFO as adjusted, which excludes the effects of non-operating impairments and transactional income and expenses, was $155.5 million, or $0.37 per diluted share, for the second quarter of 2016 compared to $152.7 million, or $0.37 per diluted share, for the second quarter of 2015.
An update on Canada and capital markets
In the second quarter, Kimco sold its interests in 22 Canadian shopping centers, all of which were joint ventures, for a gross sales price of $474.4 million. With these dispositions, our strategic exit from Canada is over 90 percent complete, with six remaining Canadian joint venture assets expected to be sold by the end of the year. We continue reducing our joint venture investments throughout North America – the number of properties in our JV portfolio now stands at 152, compared to 551 sites in 2010.
Furthermore, Kimco is working to simplify its capital structure by redeeming our Canadian dollar-denominated bonds. We will also prepay an unsecured bond, as well as a portion of our U.S. mortgages coming due in 2017, which allows us to take full advantage of the all-time low rate environment and further extend our maturity profile.
One publicly stated goal of Kimco’s 2020 Vision is to achieve an A-/A3 credit rating. These moves, along with others, allow us to evaluate further opportunities in the capital markets as a way to improve the balance sheet.
The U.S. outlook
In late July, Kimco announced the planned acquisition of Kentlands Market Square, a shopping center anchored by Whole Foods, in Gaithersburg, Maryland that the company should acquire sometime in August. This center has significant upside and redevelopment potential. We also had the opportunity to buy back the Sports Authority lease at our Farmington, Connecticut property, which represents a significant mark-to-market opportunity. We are very optimistic about the retailer interest in our Sports Authority spaces.
In development news, work continues. Houston’s Grand Parkway is on schedule and is 89 percent leased, and Grand Parkway Phase II (which sits across the street) continues to move forward with anchor boxes executing leases. Development at Dania Pointe, in the Fort Lauderdale MSA, is also on schedule with Costco anchoring Phase I and H&M recently committing to anchor Phase II of this project.
On the redevelopment front, Pentagon Centre’s new parking garage is nearly completed, and will allow Kimco to move forward with Phase I densification. Projects like this are important for Kimco, as they are just the beginning of our efforts to reposition some of our best shopping centers.
Throughout the U.S., our shopping centers continue to strike the right blend of off-price and grocery anchors with small shop tenants. In the U.S., occupancy is up to 96 percent and anchor box occupancy is at 98.3 percent. New leasing deal spreads improved to 29.8 percent, which highlights mark-to-market opportunity. Renewals and options improved 10.7 percent to bring combined leasing spreads to an impressive 16.2 percent, a three-year high. Overall, same-site NOI jumped 3.1 percent, which includes 30 basis points from redevelopment.
Focusing on our 2020 Vision
In Q2, we began the process of merging our primary taxable REIT subsidiary into Kimco’s parent company, which will transfer long-term assets into the REIT structure. This will simplify our holdings while making them more efficient.
We are on the road to our 2020 Vision, as our portfolio shows its resilience to economic downturns while attracting high-quality tenants throughout the country. Together, these forces are generating earnings growth and improving our net asset value. We’re committed to assembling the best portfolio of open air shopping centers in the top U.S. markets with the strongest fundamentals. As Kimco CEO Conor Flynn said on the most recent earnings call, “Our portfolio’s changing profile is dramatic both in quality and value.”
If you’d like to know more, you can listen to the earnings webcast or read the full transcript.
Return in the fall for the next earnings announcement. As always, thank you for reading.