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Should You Retain Kimco (KIM) Stock in Your Portfolio Now?
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Kimco Realty (KIM - Free Report) is well-poised to benefit from its portfolio of premium retail properties in key metro markets. Its focus on grocery-anchored properties, mixed-use assets and a strong balance sheet position bodes well for growth. However, a rise in e-commerce adoption and a high interest rate environment are headwinds.
Kimco’s properties are located in the drivable first-ring suburbs of its major metropolitan Sunbelt and coastal markets, which offer several growth levers like high employment and strong spending power. Particularly, 86% of the annual base rent comes from its top major metro markets.
During the uncertain times, the grocery component saved the grace of the retail REITs and 81% of Kimco’s annual base rent came from grocery-anchored in the first quarter of 2023. KIM targets to achieve 85% of its annual base rent from this segment by 2025.
Apart from having a focus on grocery and home-improvement tenants, the company emphasizes mixed-use assets clustered in strong economic metropolitan statistical areas. The mixed-use assets category is benefiting from the recovery in both the apartment and retail sectors. Particularly, the company is targeting an increase in net asset value through a selected collection of mixed-use projects, redevelopments and active investment management.
Additionally, Kimco maintains a robust balance sheet position and has ample financial flexibility. It exited the first quarter of 2023 with more than $2.3 billion of immediate liquidity.
However, the market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. Particularly, the efforts of online retailers in recent years to go deeper into the grocery business have emerged as a concern for Kimco.
Further, the high interest rate environment is a concern for Kimco. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. Our estimate for 2023 interest expense indicates a year-over-year increase of 12.5%. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts due to high interest rates.
Shares of this Zacks Rank #3 (Hold) company have lost 8.4% in the past three months compared with the industry’s decline of 4.3%.
The Zacks Consensus Estimate for Acadia Realty Trust’s 2023 funds from operations (FFO) per share has been revised 0.8% north over the past month to $1.23.
The Zacks Consensus Estimate for Saul Centers’ 2023 FFO per share has been revised 1.3% north over the past month to $3.05.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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Should You Retain Kimco (KIM) Stock in Your Portfolio Now?
Kimco Realty (KIM - Free Report) is well-poised to benefit from its portfolio of premium retail properties in key metro markets. Its focus on grocery-anchored properties, mixed-use assets and a strong balance sheet position bodes well for growth. However, a rise in e-commerce adoption and a high interest rate environment are headwinds.
Kimco’s properties are located in the drivable first-ring suburbs of its major metropolitan Sunbelt and coastal markets, which offer several growth levers like high employment and strong spending power. Particularly, 86% of the annual base rent comes from its top major metro markets.
During the uncertain times, the grocery component saved the grace of the retail REITs and 81% of Kimco’s annual base rent came from grocery-anchored in the first quarter of 2023. KIM targets to achieve 85% of its annual base rent from this segment by 2025.
Apart from having a focus on grocery and home-improvement tenants, the company emphasizes mixed-use assets clustered in strong economic metropolitan statistical areas. The mixed-use assets category is benefiting from the recovery in both the apartment and retail sectors. Particularly, the company is targeting an increase in net asset value through a selected collection of mixed-use projects, redevelopments and active investment management.
Additionally, Kimco maintains a robust balance sheet position and has ample financial flexibility. It exited the first quarter of 2023 with more than $2.3 billion of immediate liquidity.
However, the market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. Particularly, the efforts of online retailers in recent years to go deeper into the grocery business have emerged as a concern for Kimco.
Further, the high interest rate environment is a concern for Kimco. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. Our estimate for 2023 interest expense indicates a year-over-year increase of 12.5%. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts due to high interest rates.
Shares of this Zacks Rank #3 (Hold) company have lost 8.4% in the past three months compared with the industry’s decline of 4.3%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Acadia Realty Trust (AKR - Free Report) , and Saul Centers (BFS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Acadia Realty Trust’s 2023 funds from operations (FFO) per share has been revised 0.8% north over the past month to $1.23.
The Zacks Consensus Estimate for Saul Centers’ 2023 FFO per share has been revised 1.3% north over the past month to $3.05.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.