Earnings Scorecard: Kimco Realty

| About: Kimco Realty (KIM)

Kimco Realty (KIM), a leading real estate investment trust (REIT), reported funds from operations ((FFO) of 27 cents per share for fiscal 2010 third quarter, which marginally exceeded the Zacks Consensus Estimate by a penny. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Below we cover the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review
Total revenues during the quarter were $210.5 million compared with $190.1 million in the year-earlier quarter – an increase of 10.7%. Total revenues for the reported quarter, however, fell short of the Zacks Consensus Estimate of $214 million. Overall occupancy in Kimco’s combined shopping center portfolio was 92.7% at the end of the quarter, an increase of 30 bps compared with third quarter 2009.

Occupancy in the U.S. portfolio was 92.3% as on September 30, 2010, an increase of 40 bps compared with the year-ago period. Same-store net operating income (cash-basis, excluding lease termination fees and including charges for bad debts) in the U.S. portfolio increased 2.2% year over year.

Earnings Estimate Revisions: Overview
Fiscal earnings estimates have climbed for Kimco since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Lets dig into the earnings estimate details.

Agreement of Estimate Revisions
In the last 7 days, fiscal 2010 earnings estimates were raised by 5 analysts out of 14 covering the stock, while only 1 has lowered the same. For fiscal 2011, 7 out of 13 analysts covering the stock revised their estimates upward, while none lowered it in the last 7 days. This indicates a clear positive directional movement for fiscal earnings estimates.

Magnitude of Estimate Revisions
Earning estimates for fiscal 2010 have increased by a penny in the last 7 days to $1.12. Kimco also raised its fiscal 2010 recurring FFO guidance from $1.14 – $1.18 per share to $1.17 – $1.19. For fiscal 2011, earnings estimates have increased by a penny to $1.18 in the last 7 days, while the company expects recurring FFO in the range of $1.17 – $1.21 per share. With strong quarterly results, Kimco has also increased its quarterly dividend by 12.5% to 18 cents per share.

Moving Forward
The long-term earnings estimate picture for Kimco is positive. Kimco is the largest publicly traded owner and operator of neighborhood and community shopping centers in the U.S., with a geographically diverse portfolio concentrated mostly in high-income and high-growth areas. Given the current uncertainty in the capital markets, Kimco has also modified its business strategy to focus on core retail competencies. The company intends to concentrate its future investments on the neighborhood and community shopping center segment, primarily focusing on the North American market. This provides a strong upside potential for the top-line growth of the company.

However, the prolonged recession has led to increased tenant bankruptcies, which in turn have resulted in a decline in occupancy and an increase in vacancy rates. In addition, failure to successfully manage the geographically diverse operations could impair its ability to react quickly to changing business and market conditions, thereby affecting its long-term profitability.

We maintain our long-term Neutral rating on Kimco, which presently has a Zacks #3 Rank translating into a short-term 'Hold' recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.