Kimco Misses Marginally

Kimco Realty Corp. (KIM - Analyst Report), a leading real estate investment trust (REIT), reported a 13.8% increase in second quarter 2010 rental revenues compared with the year-earlier quarter. Revenues for the reported quarter increased to $214.0 million from $188.1 million in the year-ago quarter. However, revenues for the reported quarter fell short of the Zacks Consensus Estimate of $216 million.
 
The company reported second quarter 2010 FFO (fund from operations) of $105.6 million or 26 cents per share compared with an FFO loss of $62.7 million or 17 cents per share in the year-ago period. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The second quarter 2010 FFO marginally missed the Zacks Consensus Estimate by a penny.
 
The quarterly FFO includes certain non-recurring items, excluding which FFO for the second quarter of 2010 was $125.5 million or 31 cents per share compared with $113.8 million or 31 cents per share in the year-earlier quarter.
 
Overall occupancy in Kimco’s combined shopping center portfolio was 92.7% at the end of the quarter, an increase of 40 bps compared with second quarter 2009. In the U.S. portfolio, occupancy was 92.3% as on June 30, 2010, an increase of 50 bps compared with the year-ago period. Same-store net operating income (NOI) in the U.S. portfolio increased 2.1% year over year. During the quarter, Kimco executed a total of 714 leases spanning 2.1 million square feet. The number of leases executed during the quarter reported a 46% year-over-year increase, while square feet leased represented a 22% increase.
 
During the quarter, Kimco formed a joint venture with BIG Shopping Centers, an Israeli publicly traded company, to acquire high-quality neighborhood and community shopping centers throughout the U.S. Kimco has a controlling stake of 50.1% in the joint venture, while BIG owns the remaining. As an initial investment, Kimco contributed two retail properties in California (spanning 343,000 square feet) to the joint venture.
 
Kimco also formed another joint venture with BIG during the quarter to acquire 13 high-quality neighborhood and community shopping centers for about $394 million including $360 million in mortgage debt. BIG has a 49.9% ownership interest, while Kimco owns 33.3% in the joint venture. The remaining 16.8% ownership is controlled by a consortium of other investors.
 
In addition, Kimco formed a joint venture with Canada Pension Plan Investment Board to acquire five retail properties for approximately $370 million, including $160 million of mortgage debt. Besides serving as the operating partner, Kimco holds a 55% ownership interest in the joint venture.
 
The second quarter of 2010 saw the company recognizing $11.4 million of fee income related to its investment management business. Kimco had 287 properties in investment management funds with 24 institutional partners at quarter-end. During the quarter, the company generated $22 million of income from its structured investments and other non-retail assets, out of which $16 million was recurring in nature and $6 million was transactional.
 
At quarter-end, the company had $135.3 million of cash and cash equivalents. In addition, Kimco had $1.6 billion available under its revolving credit facilities. The company raised its fiscal 2010 FFO guidance from $1.10 – $1.15 per share to $1.14 – $1.18. We maintain our Neutral recommendation on the stock with a Zacks #4 Rank, which translates into a short-term “Sell” rating.

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