Kimco Realty CorporationKIM

Morningstar Rating

Stock Research and Analysis

by Todd Lukasik, CFA

Kimco Realty's scale and reputation as a successful property manager and its seasoned property portfolio lead to our narrow economic moat rating. However, the large impact of its joint ventures, development pipeline, noncore investments, and difficult macro environment suggest a very high degree of uncertainty. Read more

Bulls Say

Tenants sign long-term leases that include regular rent payments, a share of operating expenses, and additional fees linked to strong store performance. This should provide a nice, recurring stream of revenue for Kimco.

Kimco's annual minimum rents plus incremental rents based on operating expenses consistently represent 99% of property revenue, which makes Kimco less reliant on contingent revenue (such as revenue linked to tenant sales) than many of its peers.

Kimco recently had more cash and borrowing capacity on its revolver (nearly $1 billion) than its total consolidated debt maturities through 2010 (roughly $830 million).

Kimco's top 15 tenants report sales on about half of their leases, and the firm reports that for these locations its top 15 tenants' average occupancy cost is 40% lower than the national average occupancy cost. This suggests upside to Kimco's rental base. Read more

Bears Say

The outlook for Kimco's retail tenants is bleak, as consumers are struggling against a variety of head winds.

Retail commercial real estate is likely to lose value over the next few years, as a reduction in demand for retail space coincides with the entry of new supply into the market.

If long-term interest rates rise, in addition to already increased credit spreads, this firm's cost of capital would increase, pressuring asset values and reducing cash flow.

Kimco earned about $700 million in transaction fee income from its development business in the past six years. Kimco is winding this business down.

Kimco has off-balance-sheet guarantees, letters of credit, and other obligations that we estimate amount to nearly $0.5 billion of potential liabilities (some of which are reimbursable by its joint-venture partners), relative to its estimated enterprise value of roughly $9 billion. Read more

Strategy

Given the recent turmoil in commercial real estate and credit markets, Kimco announced a change in strategy. The firm will focus on neighborhood and community shopping centers in North America, investing both its own balance sheet capital and institutional partners' funds (in joint-venture deals). Read more

Management

Kimco receives fair marks in our stewardship model. We dislike that the roles of CEO and chairman are both held by Milton Cooper, because we prefer less concentrated decision making. Furthermore, the firm does not use specific performance targets for determining corporate or individual performance, certain executives have guaranteed minimum bonuses, and it has copious related-party transactions. Read more

Profile

Kimco is the largest real estate investment trust specializing in neighborhood shopping centers. It has interests in nearly 2,000 total properties with 182 million square feet of gross leasable area, more than half of which is held in joint ventures. Read more

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