Back to top

Image: Shutterstock

Here's Why You Should Retain Kimco Realty (KIM) Stock for Now

Read MoreHide Full Article

Kimco Realty Corp. (KIM - Free Report) , the owner and operator of open-air, grocery-anchored shopping centers and mixed-use assets, has properties in the drivable first-ring suburbs of its top 20 major metropolitan Sunbelt and coastal markets, which offer several growth drivers. Moreover, the company’s acquisition of grocery-anchored shopping center owner — Weingarten Realty Investors — seems a strategic fit as the combined entity will benefit from its increased scale, density in the key Sun Belt markets and a broader redevelopment pipeline.

Further, having a grocery component has been the saving grace for retail REITs, and 78.5% of Kimco’s annual base rent came in from grocery-anchored centers in the second quarter. With a well-located and largely grocery-anchored portfolio that offers essential goods and services, the retail REIT witnessed decent leasing activity during the second quarter and this favourable trend is expected to continue.

Moreover, apart from having a focus on the grocery and home-improvement tenants, the company emphasizes on mixed-use assets clustered in the strong economic MSAs. Particularly, the company is targeting an increase in net asset value through a selected collection of mixed-use projects, redevelopments and active investment management.

In addition, retailers are utilizing these last-mile stores as indispensable fulfilment and distribution centers to serve the dense population close by, and outperforming the pure e-commerce players on delivery times and cost efficiency. Also, curbside pick-up, combined with click-and-collect options, will likely continue gaining attention amid the current environment and even in the post-Covid era, and the company is focused to capitalize on such trends. Such efforts are likely to enhance the company’s competitive advantage in current times.

Kimco has been making efforts to bolster its financial flexibility and with such moves, the retail REIT exited second-quarter 2021 with more than $2.2 billion of immediate liquidity. Apart from this, the company has 350 unencumbered assets, which represents roughly around 88% of its properties and 89% of its total net operating income (NOI). Kimco’s consolidated weighted-average debt maturity profile is 10.7 years.

In addition, shares of Kimco have gained 17.4% over the past six months, outperforming its industry’s increase of 14.5%.

Zacks Investment Research
Image Source: Zacks Investment Research

However, over the recent years, the retail real estate traffic has continued to suffer amid a rapid shift in customers’ shopping preferences and patterns with online purchases growing by leaps and bounds. These have made retailers reconsider their footprint and eventually opt for store closures.

Further, retailers not unable to cope with competition are filing bankruptcies. This has emerged as a pressing concern for retail REITs like Kimco, as the trend is curtailing demand for the retail real estate space considerably. The situation has been further aggravated amid the social-distancing requirements and higher e-commerce adoption due to the coronavirus crisis.

Finally, the recent trend in estimate revisions does not indicate a favorable outlook as the Zacks Consensus Estimate for 2021 funds from operations (FFO) per share has witnessed a marginal downward revision over the past week. Given the above-mentioned concerns and the downward estimate revisions, the stock has a limited upside potential for the near term.

Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

The Zacks Consensus Estimate for Simon Property Group’s (SPG - Free Report) current-year FFO per share estimate has moved up 1.2% to $10.82 in the past week. The company carries a Zacks Rank of 2, currently.

Regency Centers Corporation (REG - Free Report) holds a Zacks Rank of 2, at present. The Zacks Consensus Estimate for its 2021 FFO per share has been revised 5.1% upward to $3.70 in a month’s time.

The Zacks Consensus Estimate for SITE Centers Corp.’s (SITC - Free Report) ongoing-year FFO per share has moved 2.8% north to $1.10 over the past month. The company carries a Zacks Rank of 2, currently.

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.