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Is It Wise to Retain Kimco (KIM) Stock in Your Portfolio Now?

Kimco Realty KIM is well-poised to benefit from its portfolio of premium retail properties in key metro markets. Its conveniently located grocery-anchored properties, a focus on mixed-use assets and a strong balance sheet position augur well.

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, 85% of the annual base rent (ABR) comes from its major metro markets.

Moreover, a large portion of Kimco’s portfolio comprises grocery-anchored centers that offer essential goods and services. In the third quarter of 2022, 81% of Kimco’s ABR came from grocery-anchored centers. The company targets to achieve 85% of its ABR from this segment by 2025.

In the third quarter, Kimco signed 461 leases. These aggregated 2.1 million square feet in the quarter, of which 315 were renewals and options totaling 1.5 million square feet and 146 were new leases totaling 620,000 square feet.

Blended pro-rata rental-rate spreads on comparable spaces increased 7.5%, with rental rates for new leases growing 16.5% and renewals and options rising 6.2%. The pro-rata portfolio occupancy ended the third quarter at 95.3%, with anchor and small-shop occupancy at 97.8% and 89.2%, respectively. Given the necessity-driven nature of the grocery-anchored portfolio, this upbeat trend is likely to continue in the upcoming period, ensuring a steady stream of cash flow.

Further, Kimco has been focusing on its mixed-use assets clustered in strong economic metropolitan statistical areas that serve the last mile. This segment is gaining from the recovery in the apartment and retail sectors. Through a selected collection of mixed-use projects, redevelopments and active investment management, KIM has been targeting to increase its net asset value.

Also, Kimco maintains a robust balance sheet position and has ample financial flexibility. It exited the third quarter of 2022 with nearly $2 billion of immediate liquidity.

Kimco and retail REITs like SITE Centers Corp. SITC, National Retail Properties, Inc. NNN and Kite Realty Group Trust KRG are poised to benefit from the rebound in consumer confidence. Also, there is pent-up consumer demand as consumers look for an exclusive in-store shopping experience following the pandemic downtime.

A focus on e-commerce-resistant sectors, efforts to support omnichannel retailing, adaptive reuse capabilities and opportunities emanating from consolidations have poised Kimco, National Retail Properties, SITE Centers and Kite Realty Group for growth.

However, inflationary pressure and economic slowdown might cast a pall on the recovery. Also, higher e-commerce adoption might continue to affect retail landlords’ cash flows.

With the pandemic's impact waning, mall traffic has rebounded significantly. However, given the convenience of online shopping, it is likely to continue being a popular choice among consumers. Consequently, this might impact the market share for brick-and-mortar stores and hurt the demand for KIM’s properties.  

Higher interest rates might increase Kimco's borrowing costs, affecting its ability to purchase or develop real estate. Further, the dividend payout might become less attractive than the yields on fixed income and money market accounts.

Shares of this Zacks Rank #3 (Hold) company have risen 1% in the past six months, underperforming the industry’s increase of 5.7%. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here. The Zacks Consensus Estimate for Kimco’s 2022 funds from operations per share has remained unchanged at $1.58 over the past two months.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

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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Kimco Realty Corporation (KIM) : Free Stock Analysis Report

National Retail Properties (NNN) : Free Stock Analysis Report

Kite Realty Group Trust (KRG) : Free Stock Analysis Report

SITE CENTERS CORP. (SITC) : Free Stock Analysis Report

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