Kimco Realty Earnings: Newly Signed Leases for Anchor Space Drive High Re-Leasing Spreads

Kimco Realty KIM reported second-quarter results that were in line with our estimates, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Same-store occupancy sequentially remained flat at 95.8% in the second quarter and was up 60 basis points year over year. Blended re-leasing spreads were up 9.9% as spaces signed to new tenants saw a 25.3% increase in rent terms over the prior tenant’s lease. As a result, minimum rent for the same-store portfolio was up 2.9% year over year, though same-store revenue only increased 2.6% as the company recorded a $3.2 million credit loss. Same-store operating expenses increased 3.4% in the second quarter, leading to same-store net operating income growth of 2.3% that was slightly below our estimate of 2.6% growth. Kimco reported second-quarter funds from operation of $0.39 per share that matched our estimate for the quarter.

Kimco reported solid operating results despite dealing with the negative impact of two major anchor tenants vacating spaces. Management said that eight Bed Bath & Beyond stores and 11 Tuesday Morning stores were vacant in the second quarter, reducing total occupancy by approximately 25 basis points. Despite this, anchor occupancy stood at 97.7%, representing a 10-basis-point year-over-year increase. The large re-leasing spread on newly signed leases in the second quarter was driven by management signing four of the Bed Bath & Beyond spaces to new tenants with rent increasing 31% on average for the four anchor stores. Therefore, despite the headlines that some major anchor retailers are struggling and closing stores, the overall retail space remains healthy for shopping center REITs like Kimco.