Upbeat Despite Consensus Miss

The rise in US Treasury yields had a negative impact on REITs in general.

Kimco’s reported funds from operations for the fourth quarter were $0.38 per share, falling just short of the consensus analyst forecast.

Sales of $435.8 million for the three-month period were above the average projection of $408.4 million.

The company also provided a preliminary 2023 full-year FFO forecast of $1.53 to $1.57, which fell short of the average estimate of $1.59. Several others thought the initial direction was too conservative.

Nonetheless, CEO Connor Flynn believes that “we can’t ignore the macro climate and the possibility for credit defaults to revert to the mean.

As a result, the guidance now contemplates a broader range for credit loss as a percentage of sales of -75 to -125 basis points.

In addition, guidance implies an increase in interest expenditure of $20 million to $28 million in 2023.

Mr. Flynn of Kimco added, “We ended 2022 with strong occupancy gains driven by our team’s outstanding leasing execution, with over 2.5 million square feet leased in the quarter and 11.6 million square feet for the year, making it one of our best years on record.

During Q4, Kimco generated proceeds of $301.1 million from the sale of 11.5 million shares of common stocks of Albertsons that it owned.

KIM has chosen to keep the revenues for general business purposes rather than pay the $57.2 million in state and federal corporate income tax on the long-term capital gains from this sale.

Because the firm paid capital gains tax, each shareholder is entitled to a federal tax credit for its part of the tax paid by the company.

Special Dividend

Kimco still possessed 28.3 million Albertsons shares valued at about $588 million at the end of Q4, of which 28.0 million are subject to a lockup until May 16, 2023.

Kimco also received a $194.1 million special dividend payment from Albertsons following the end of the quarter.

As a result, the firm anticipates that it may need to make a special dividend payment to maintain compliance with REIT distribution requirements, as it eliminates this one-time benefit from its calculation of FFO.

This special dividend will be determined and declared by the end of the fiscal year, and it may be paid in cash, common stock, or a mix of the two.

We like how Kimco’s core portfolio is still well-positioned for the long run.

KIM has lowered its leverage by selling non-retail assets (including some Albertsons stock) and refinancing.

At the same time, we are optimistic about the company’s plans to reinvest the funds in its portfolio, redevelop properties and pay down debt to lower leverage even more.

Kimco presently yields 4.3% and we have adjusted our target price to $29.

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