Shares of Kimco Realty KIM have soared 25.9% in the past three months compared with its industry’s rally of 17.2%.

This Jericho, NY-based retail real estate investment trust (REIT) is well-poised to benefit from its portfolio of premium shopping centers, which are predominantly grocery-anchored, in the drivable first-ring suburbs within key major metropolitan Sunbelt and coastal markets. Its focus on developing mixed-use assets and a healthy balance sheet position bode well for long-term growth.

Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 FFO per share grew nearly 1% over the past month to $1.62.

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Let’s find out the factors behind the surge in the stock price.

Kimco’s properties are located in the drivable first-ring suburbs within key major metropolitan Sunbelt and coastal markets. Particularly, 82% of the annual base rent (“ABR”) comes from its top major metro markets. Given the strategic location of its properties, it is likely to witness healthy demand in the near term, boosting leasing activity.

Kimco enjoys a diverse tenant base, led by a healthy mix of essential, necessity-based tenants and omni-channel retailers. National/regional tenants accounted for 81% of Kimco’s pro rata ABR as of the end of the second quarter of 2024. Given the strength of its retailers with a developed omnichannel presence, the company is likely to be able to generate stable cash flows.

During uncertain times, the grocery component saved the grace of the retail REITs. As of June 30, 2024, RPT’s acquisition has boosted its ABR from grocery-anchored centers to 83% from 81% in 2022. KIM has set a target to reach 85% of its ABR from this segment.

In the second quarter of 2024, Kimco witnessed 54 consecutive quarters of positive leasing spreads, indicating solid pricing power across its high-quality portfolio. Also, retention rates for the grocery portfolio remain higher compared with the non-grocery portfolio. Given the necessity-driven nature of Kimco’s grocery-anchored portfolio, it is likely to continue witnessing healthy leasing activity in the upcoming period and remains well-positioned to tide over challenging times.

Apart from having a focus on grocery and home-improvement tenants, the company emphasizes mixed-use assets clustered in strong economic metropolitan statistical areas. The mixed-use assets category is benefiting from the recovery in both the apartment and retail sectors.

KIM’s Strategic Acquisition & Redevelopment Projects

Kimco has been following an opportunistic investment policy to enhance its overall portfolio quality. This includes divesting its joint venture assets and using the proceeds to fund acquisitions and development and redevelopment projects. In the first half of 2024, the company disposed of 11 operating properties and seven land parcels in separate transactions for an aggregate sales price of $254.1 million.

The acquisition of RPT in January 2024 has benefited the company by increasing scale in high-growth target markets and preserving balance sheet strength. The company remains confident in achieving its 2024 acquisitions range of $300 million to $350 million, which is inclusive of structured investments.

It is actively pursuing redevelopment opportunities within its operating portfolio. The company projects its capital commitment toward these redevelopment projects and re-tenanting efforts for the remainder of 2024 will be within $225-$275 million.

KIM’s Solid Balance Sheet Position

Moreover, Kimco maintains a solid balance sheet position. It exited the second quarter of 2024 with $1.9 billion of immediate liquidity. Its consolidated weighted average debt maturity profile is 8.7 years. It also enjoys investment-grade ratings of BBB+ from S&P and Baa1 from Moody’s, rendering it favorable access to the debt market. With a healthy financial footing, KIM is well-positioned to capitalize on long-term growth opportunities.

Risks Likely to Affect KIM’s Positive Trend

A rise in e-commerce adoption and efforts of online retailers to go deeper into the grocery business are concerns. Kimco faces competition from several real estate companies and developers who compete with the company for leasing space in shopping centers for tenants. This may affect Kimco’s ability to raise rental rates, including renewal rates and fill up vacancies.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Tanger Inc. SKT and Brixmor Property Group BRX, each currently carrying a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for SKT’s 2024 FFO per share stands at $2.09, indicating an increase of 6.6% from the year-ago reported figure.

The Zacks Consensus Estimate for BRX’s 2024 FFO per share is pinned at $2.13, suggesting year-over-year growth of 4.4%.

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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