Shares of Kimco Realty (KIM) dipped in response to Q4 financial results from the open-air, grocery anchored shopping plaza real estate investment trust, notes Jason Clark, value investing expert and contributing editor to The Prudent Speculator.
REITs in general were negatively impacted by the move up in U.S. Treasury yields. Kimco’s reported funds from operations for Q4 came in at $0.38 per share, just shy of the consensus analyst estimate. Revenue for the three-month period of $435.8 million exceeded the average forecast of $408.4 million.
The company also gave 2023 initial full-year FFO guidance of $1.53 to $1.57, which fell short of the consensus expectation of $1.59. Many thought the initial guidance might be a bit conservative. But, according to CEO Connor Flynn, “We can’t ignore the macro environment and the potential for credit defaults to revert to the mean.”
As a result, guidance now assumes a wider range for credit loss of -75 to -125 basis points as a percent of revenue. Guidance also assumes $20 million to $28 million of higher interest expense in 2023.
Mr. Flynn 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 (ABS) that it owned. KIM has elected to retain these proceeds for general corporate purposes and pay $57.2 million in state and federal corporate income tax on the long-term capital gains from this sale.
As a result of the payment of capital gains tax by the company, each shareholder is entitled to a federal tax credit for its share of this tax paid by the company.
At the end of Q4, Kimco still held 28.3 million shares of Albertsons valued at approximately $588 million, of which 28.0 million shares are subject to a lockup until May 16, 2023. Additionally, subsequent to quarter end, Kimco received a $194.1 million special dividend payment from Albertsons.
As a result, the company, which excludes this one-time benefit from its calculation of FFO, anticipates it may need to make a special dividend payment to maintain its compliance with REIT distribution requirements. The payment of this special dividend will be determined and announced by year end and may be in the form of cash, common stock or some combination thereof.
We continue to like that KIM’s core portfolio remains well positioned for the long-term. KIM has reduced its leverage levels through the disposition of non-retail assets (like some of the Albertsons stock) and refinancing.
We are constructive on the use of these proceeds to reinvest in its portfolio toward redeveloping properties and paying down debt to further reduce leverage. KIM currently yields 4.3% and we have adjusted our target price to $29.
