Kimco Realty (NYSE: KIM) is one of the nation’s largest publicly traded owners and operators of open-air shopping centers. A member of the Fortune 500, Kimco has been on the New York Stock Exchange since 1991 and in the business of buying, developing, and managing shopping centers for more than 60 years.
More recently, the Jericho, N.Y.-based real estate investment trust (REIT) has been concentrating its holdings in major metro areas with major tenants anchoring its centers, while at the same time diversifying into mixed-use developments that should diversify its revenue stream at a time when retail alone seems a precarious venture.
So, with a portfolio that as of June 30, 2020 included 400 properties comprising 70 million square feet of gross leasable space, a stock trading at about half its 52-week high, and a just-reinstated dividend, is Kimco Realty a buy?
Coronavirus and the disappearing dividend
Not surprisingly, Kimco Realty’s financial performance suffered as the pandemic piled on the woes that the decline of brick-and-mortar retail has wrought on REITs in the past several years. After collecting only 60% of its total rents in April, and with tenants representing 35% of its annual base rent (ABR) requesting deferrals, it’s easy to see why Kimco would join the ranks of retail REITs facing hard scrutiny by investors.
In its 2Q20 earnings report, the company said same-property net operating income was down 13.6% from 2Q19 and that it had deferred 18% of its minimum base rate. Funds from operations (FFO) also fell, to $0.24 per diluted share, for 2Q20 from $0.36 per diluted share in the year-ago period.
And, after declaring a dividend of $0.28 a share payable in April – the same as it had since January 2016 – Kimco said in May it was suspending its dividend, a first in its 27 years of such payouts, saying then it intended to reinstate the payout sometime this year to maintain compliance with REIT taxable income distribution rules.
The dividend, and the rents that support it, make modest return
And then, on Sept. 1 the REIT declared a quarterly cash dividend of $0.10 per common share, which while the lowest regular quarterly payout it’s reported since 1995, was one of other promising nuggets included in that announcement.
Kimco said it collected 76% of June rents, 82% of July rents, and 85% of August base rents as of Sept. 1 and that rent deferrals only equaled about 2% of ABR in August.
And along with pledging to maintain dividend payouts of at least the minimum required to meet REIT requirements, CEO Conor Flynn said this: "We expect to establish a more normalized and well-covered dividend level based on our adjusted funds from operations and REIT taxable income in 2021."
Some strategic reasons to consider Kimco a buy
Kimco Realty’s stock was trading in the mid-20s early in the year before collapsing to as low as $7.45 in April. The Friday, Oct. 2, close of $11.90 gave it a yield of 3.45%. That’s not terrible, and there appears to be room to grow for both those metrics.As a member of the Fortune 500, there would seem to be at least a bit of built-in support from all that index fund buying, and just a return to historical norms on the stock price shows some promise for growth as well as income.
There’s also the company’s portfolio strategy to consider. Kimco in recent years has shrunk its portfolio to about 400 properties, all in the U.S., from more than 900 in the U.S., Canada, and Mexico.
These properties are concentrated in the country’s largest metro areas and they’re being strategically supplemented by Kimco’s focus on new mixed-use developments. The REIT touts that strategy as the Signature Series on its website, and it includes developments in or near Fort Lauderdale; Houston; Washington, D.C.; Philadelphia; and New York City.
So, with a stock price still sharply depressed, a return to dividend payouts, ample liquidity, and a portfolio positioned to benefit from economic recovery (should that be strong enough to lift retail and residential), Kimco definitely could be a good investment.