TRANSFORMATION IN 2014: Q4 AND FULL-YEAR EARNINGS
Wrapping up a year marked by excellent operational metrics and valuable portfolio upgrades, Kimco closed 2014 on a high note. Our occupancy rates are now approaching historic highs and we are drawing our transformational strategy to a close as planned. We are proud to have delivered a 32.4 percent total shareholder return for the year, outperforming the RMZ, Dow Jones, and S&P 500 Indices.
Here are the highlights from our February 6th conference call with investors, in which we reported on 2014’s fourth quarter and full-year earnings:
- FFO increase: Funds from operations (FFO), a key measure of REIT performance, increased 15.2 percent in the fourth quarter over the comparable period in 2013. For the full-year 2014, FFO increased 7.4 percent.
- Same-site NOI growth: Representing our 19th consecutive positive quarterly increase, U.S. same-property net operating income increased 4.3 percent relative to Q4 2013. For the full-year 2014, U.S. same-property NOI increased 3.3 percent, including a 90 basis-point increase from the inclusion of redevelopments.
- Occupancy increase: U.S. and combined portfolio occupancy increased to 95.7 percent and 95.8 percent, respectively — the highest levels since the first quarter of 2008.
- Exit from Latin America: Our strategic disposition of Latin American assets is substantially complete. Twenty-five properties were sold in Q4 for a total of $205.2 million.
Transactions Kimco’s strong performance throughout 2014 is the direct result of portfolio transformation. The execution of our TSR+ strategy (Transformation, Simplification, and Redevelopment, plus highly selective investments) continued as our portfolio was substantially upgraded. We initiated the strategy in September 2010 and expect to reach its successful conclusion later this year.
In 2014, Kimco acquired interests in 60 high-quality properties and completed the disposition of 91 shopping centers in the U.S. as we recycled and upgraded assets in excess of $1.8 billion (pro-rata). In the fourth quarter alone, we acquired interests in nine U.S. shopping centers for a gross price of $245.0 million, and sold ownership interests in 41 non-essential centers for a gross price of $492.3 million (Kimco’s pro-rata share from these sales in Q4 was $332.2 million).
Operations We are currently reaching our highest portfolio occupancy since early 2008, with occupancy approaching 96 percent. Notably, small-shop leasing has increased sharply — up 280 basis points from the beginning of 2014, finishing at 88 percent pro rata — as local stores and small national retailers recover from the recession and resume expansion plans. An upswing in market conditions, including lower gas prices, accelerated household formation, and the mainstreaming of omni-channel retail, have also buoyed performance.
Also, U.S. portfolio pro-rata rental-rate leasing spreads increased 9.4 percent in Q4, with rental rates for new leases up 11.9 percent and renewals/options increasing 8.6 percent. Rents are climbing in our portfolio and across the entire open-air shopping center sector as discount stores and service-oriented tenants (e.g., health clubs, restaurants) continue their aggressive expansion into markets with shrinking inventory.
With the availability of high-quality space at a premium, we’ll look increasingly to our pipelines for development and redevelopment to generate recurring income growth. We completed 34 redevelopment projects last year at a total gross cost of $68 million, with an ROI of 13.9 percent, which boosted same-site NOI by 90 basis points.
Onward into 2015 With industry fundamentals improving and our portfolio transformation nearing completion, 2015 will be a year to add value and secure long-term earnings growth.
In the first quarter of 2015 we have already begun building on last year’s success, notably with the February 2nd acquisition of the remaining 66.7 percent interest in a 39-property joint venture with Blackstone Real Estate Partners. Our remaining interest in the “Kimstone” portfolio was purchased for $925 million, which included the assumption of $426.7 million in mortgage debt.
Our emphasis in 2015 will be on investing in our own properties through redevelopment and expansion, with select ground-up projects to be launched as well. Taking a measured approach, we have acquired parcels for the following four development projects, which we plan to build and hold to create long-term shareholder value:
- A Whole Foods development in Wynnewood, Pennsylvania, located on the Main Line in suburban Philadelphia, alongside our flagship Suburban Square asset;
- A site in Christiana, Delaware, sitting adjacent to General Growth Properties’ Christiana Mall, which will benefit from a tax-free shopping environment and frontage along I-95;
- The Dania Beach development site in Florida, which together with our neighboring Oakwood Plaza asset will create nearly three miles of frontage along I-95; and
- A development parcel in Houston, Texas, near the Woodlands housing development and the new Exxon Mobil campus, fronting Grand Parkway -- a location primed to take advantage of the anticipated growth in this affluent and well-educated market.
As Kimco CEO Dave Henry told investors in the earnings call, “We view 2015 as a bridge year, where we absorb the impact of our transformation program in order to position the company for superior long-term earnings growth in 2016 and beyond.”
Additional financial details for Kimco’s Q4 and full-year 2014 are available here.