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Why is Earnings Beat Unlikely for Kimco Realty (KIM) in Q1?

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Kimco Realty Corporation (KIM - Free Report) is slated to report first-quarter 2018 results on Apr 26, before the market opens. Its revenues are expected to inch up in the quarter, while funds from operations (FFO) per share will witness a year-over-year decline.

Last quarter, this New Hyde Park, NY-based retail real estate investment trust (REIT) reported in-line results with respect to FFO per share. In 2017, the company recorded the strongest leasing volume in the past decade.

Over the trailing four quarters, Kimco beat estimates in one occasion and posted in-line results in the other three, recording an average beat of 0.68%. The graph below depicts this surprise history:

Kimco Realty Corporation Price and EPS Surprise

Factors to Influence Q1 Results

Kimco is taking long strides and is progressing well with its strategic 2020 Vision. In fact, the company is reducing its portfolio size and channeling the proceeds toward high-quality assets. Further, the company is engaged in boosting the capital structure while enhancing its growth profile and tax efficiency.

Kimco revealed transaction activities for first-quarter 2018. The company disclosed dispositions of 21 shopping centers, spanning 2.3 million square feet, for a total $219.5 million. Of this, the company’s share included $210.2 million. A portfolio of five properties in the St. Louis market was disposed of for $49.5 million. Along with that, five-property portfolio, located in Florida and Georgia, was sold for $72.7 million.

However, the retail real estate market continued to bear the brunt as mall traffic continues to suffer amid a rapid shift in customers’ shopping preference through online channels, resulting in an increasing number of retailers joining the dot-com bandwagon. These made retailers reconsider their footprint and eventually opt for store closures in recent years, while others unable to cope with competition, are filing for bankruptcies.

These emerged as serious concerns for retail REITs as it is limiting demand for the retail real estate space considerably. Moreover, the choppy retail real estate market situation is said to have led to tenants demanding substantial lease concessions, which mall landlords find unjustified.

Although retail REITs like Kimco are actively enhancing omni-channel capabilities and heavily investing in redevelopment to draw customers, it may take a while for these efforts to offset the dent created in the operating results.

Furthermore, as part of its portfolio-upgrade strategy, Kimco is aggressively disposing of non-core assets. Also, the company expects to be a net seller of properties in 2018. While such efforts are encouraging for the long term, the earnings dilution, led by high-disposition activity, cannot be averted in the near term. Therefore, these moves are expected to hurt Kimco’s growth momentum in the to-be-reported quarter.

Amid these, the Zacks Consensus Estimate for revenues is pegged at $298.4 million for the quarter under review, reflecting projected growth of 3.1% from the year-ago period.

Kimco’s activities during the quarter could not gain adequate analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share of 36 cents for the first quarter remained unchanged over the past month. The figure also witnessed a decline of 2.7% from the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively show that Kimco will likely beat FFO estimates this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Kimco has an Earnings ESP of -0.05%, representing the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Zacks Rank: Kimco has a Zacks Rank #4 (Sell) which further decreases the predictive power of ESP.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider as our model shows that these have the right combination of elements to report a positive surprise this quarter:

PS Business Parks, Inc. , scheduled to release first-quarter results on Apr 24, has an Earnings ESP of +0.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Taubman Centers, Inc. , slated to release earnings on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3.

Simon Property Group, Inc. (SPG - Free Report) , slated to release quarterly numbers on Apr 27, has an Earnings ESP of +0.32% and a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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