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What's in the Offing for Kimco (KIM) This Earnings Season?

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Kimco Realty Corporation (KIM - Free Report) is slated to report third-quarter 2019 results on Oct 24, before the market opens. The company’s results are expected to reflect a slight decline in revenues, while its funds from operations (FFO) per share might have remained flat, year on year.

In the last reported quarter, this New Hyde Park, NY-based retail real estate investment trust (REIT) delivered an in-line performance in terms of funds from operations (FFO) per share. Results reflected increase in portfolio occupancy matching an all-time high level, solid leasing spreads on new lease and positive same-property net operating income (NOI). However, asset sales keep dampening its profitability.

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 0.7%. The graph below depicts this surprise history:

Kimco Realty Corporation Price and EPS Surprise

Kimco Realty Corporation Price and EPS Surprise

Kimco Realty Corporation price-eps-surprise | Kimco Realty Corporation Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

The recent data from Reis shows that the vacancy rate of neighborhood and community shopping center contracted 10 basis points sequentially to 10.1% in the third quarter. Both, national average asking rent and effective rent, which nets out landlord concessions, inched up 0.3% sequentially. However, the Regional Mall vacancy rate expanded 10 basis points sequentially to 9.4%. Nonetheless, rent growth was 0.2% in the quarter.

Store closures and bankruptcies have been affecting the retail real estate market, for long, which is, in fact, undergoing structural changes. However, with retail spending being healthy with consumer spending increasing amid job growth, the retail real estate sector is expected to grow at a slow but steady pace in the upcoming period.

Kimco is on track with its 2020 Vision that envisages the ownership of high-quality assets concentrated in major metro markets, which offer several growth levers. The company remains well poised to navigate through mall traffic blues, with focus on service and experiential tenants and omni-channel players.

Kimco is also focused on expanding its small shops’ portfolio. These shops comprise service-based industries, such as restaurants, salons and spas, personal fitness and medical practices. The shops enjoy frequent customer traffic and are Internet resistant. Amid limited new supply and favorable demographics, this diversification is likely to have helped Kimco limit operating and leasing risks in the quarter under review.

Simultaneously, the company is making significant disposition of assets. In fact, as part of its efforts to fine tune the company’s portfolio, Kimco sold eight properties and two land parcels, aggregating 1 million square feet of space, during the September-end quarter. With these dispositions, the company’s third-quarter 2019 sales volume totaled $166.7 million, Kimco’s share of the sales price being $70.9 million. In fact, since the beginning of the year through Oct 7, dispositions have resulted in gross proceeds of $392.8 million, involving sell of 20 properties and three land parcels, totaling 3 million square feet.

With a healthy job-market environment stimulating consumer spending, the company is likely to have experienced high occupancy and healthy leasing spreads in the to-be-reported quarter. Also, the company is expected to have maintained a strong balance sheet backed by its strategic measures to boost the capital structure. It also remains focused on growing its unencumbered asset pool, which is encouraging.

Nonetheless, despite all these efforts, the choppy retail real estate environment might have curbed its growth momentum to some extent. This is because secular industry headwinds, including retailer downsizing and tenant bankruptcies, have been dampening industry fundamentals. Moreover, though disposition efforts are encouraging for the long term, these will likely have a dilutive impact on its near-term earnings.

Amid these, the Zacks Consensus Estimate for Kimco’s third-quarter revenues is currently pinned at $282.6 million — reflecting around 0.2% estimated decline from the prior-year period’s reported figure. The Zacks Consensus Estimate of FFO per share of 36 cents for the quarter indicates no change year on year.

In addition to the above, Kimco’s activities during the July-September quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share of 36 cents for the third quarter remained unchanged over the past month.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Kimco this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Kimco carries a Zacks Rank of 3, its Earnings ESP of -5.56% makes surprise prediction difficult.

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:

Public Storage (PSA - Free Report) , set to report quarterly results on Oct 29, has an Earnings ESP of +1.50% and carries a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Realty Income (O - Free Report) , scheduled to release earnings on Nov 4, has an Earnings ESP of +0.3% and currently carries a Zacks Rank of 2.

Digital Realty Trust, Inc. (DLR - Free Report) , slated to report third-quarter results on Oct 29, has an Earnings ESP of +0.78% and currently carries a Zacks Rank of 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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