Kimco Realty Corporation (KIM) is an equity based Real estate investment trust that owns and operates retail properties across the United States. KIM is the largest owner and manager of shopping centers in the Western Hemisphere, as measured by number of properties. The company has interests in 1,959 properties, totaling 183 million square feet of leasable space, across 45 states, Puerto Rico, Canada, Mexico and Chile.[1] Kimco focuses on markets where land is expensive and in short supply, which means there are high barriers to entry for competitors.[2] Retailers in its properties focus on consumer staples, such as groceries and drugstores.[3]

In 2007, Kimco increased its line of credit from $850M to $1.5B and completed a $460M preferred stock offering.[4] This helps to secure the company's financing at a time that a credit crisis originating in subprime mortgages has dried up other sources of credit for many REITs. Kimco needs the financing to acquire new properties - in 2007 the company bought over 200 properties and sold only 6.[5]

Business Financials

Kimco's revenues increase primarily through acquisition of new properties. The company purchases properties outright, participates in joint ventures (in which it partners with an institutional investor but retains management control) and invests in securities of real estate operators and developers that they believe are under priced relative to the market.[6] It often focuses on centers with below market leases, but with a large portion of those leases expiring in the next five years.[7] Kimco then redevelops and re-leases the centers to create value for its investors. For example, during 2007 KIM acquired 43 operating properties outright and 171 operating properties through joint ventures to redevelop and release.[8]

Factors affecting net income from 2006 to 2007:

  1. Rental revenue at KIM’s newly acquired properties increased to $85.5 million.[9]
  2. Increases in rental revenues at existing properties due to increased rental rates and increased occupancy (95.9% at December 31st, 2007 vs. 95.1% at December 31st 2006) provided a $14.6 million incremental gain.[10]
  3. Revenue gains were offset by an increase in operating expense of approximately $30 million and an increase in depreciation expense of $50 million.[11]

These numbers help to explain the graphs below. Revenue and FFO exclude depreciation expense, which increased much more than operating expense (a 36.2% increase in depreciation expense vs. a 16.9% increase in operating expense).[12] The company has been quickly expanding and net income and operating income factor into the cost of that expansion, in the form of greater depreciation expense from the newly acquired properties. This is why operating income and net income have increased at slower rates than revenues or FFO.

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It is also telling that KIM’s FFO is greater than its Net Income, and the gap between the two metrics is widening. Funds From Operations (FFO) is a measure commonly used in the real estate industry. FFO is obtained from a company's net income, excluding any gain/sale on real estate sold during the period and excluding any depreciation/amortization. As net income as a percentage of FFO falls, it suggests that KIM’s depreciation expense is experiencing larger increases then its gain on dispositions. Just as above, this suggests that KIM is quickly expanding, and purchasing far more properties than it is selling.

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Trends and Forces

Interest Rate Hikes Increase KIM’s Operating Expenses and Decrease The Company’s Stock Price

  • As of December 31st, 2007 KIM had approximately $3.85B in outstanding debt, approximately 17% of which was variable rate debt. The company's variable rate debt is primarily tied to LIBOR. The company estimates that if interest rates on its variable rate debt increased by 1%, its interest expense for the year would have been $6.8M higher, resulting in an approximately 1.5% drop in net income. Rising interest costs would also make it more costly for KIM to issue new debt, as they will have to provide a higher return. Since KIM relies on new debt to fund its expansion, higher interest rates are an obstacle to the firm’s growth.
  • As interest rates rise, KIM sees a decrease in its stock price as alternative investments provide a greater Return on Investment (ROI). This occurs because as rates rise, fixed income instruments such as bonds provide higher returns. Since investors are able to earn a higher risk-adjusted return on fixed income instruments, they shift their investment out of Kimco's stock and into these fixed income products. When the number of people wishing to hold Kimco's stock decreases, the stock price falls.

Inability To Obtain Financing Caused By The Credit Crunch Can Impede KIM’s Growth

  • As a Real Estate Investment Trust KIM is required to pay out 90% of its taxable income in dividends. This requirement makes it unlikely KIM can fund all its growth from operating income. To finance growth the company also relies on debt or equity capital. If the company is unable to obtain financing at favorable rates, it will not be able to fund expansion.
  • As discussed in the Business Financials section, KIM has been aggressively expanding, creating large gains in FFO and revenues. If the company is unable to continue to expand it will fail to meet the market’s growth expectations and see a decline in stock price.
  • As of December 31st, 2007 KIM’s debt to market capitalization ratio was only 30%, and its debt maintained an investment grade rating.[15] This increases the likelihood KIM will be able to issue new debt.

U.S. Economic Cycles Create Risks of Tenant Insolvency and Decreased Revenues

  • KIM’s properties consist primarily of retail space, making the company vulnerable in a general economic downturn. If consumer spending levels decline, demand for KIM’s properties will decrease as retail businesses will contract rather than expand. Slow demand lowers the rents that tenants are willing to pay for KIM’s properties.
  • KIM also faces the risk that a decline in consumer spending levels will render a portion of its tenants insolvent, leaving them unable to meet their lease obligations. During the economic downturn retailers have been experiencing a wave of bankruptcies, and many are scaling back expansion or canceling leases[16] The risk of a tenant defaulting on a lease is tempered by KIM’s focus on tenant’s dealing in consumer staples, a sector that is traditionally more insulated from changing economic conditions.[17]
  • KIM is insulated from economic conditions on a local or regional scale, as its properties are geographically diversified across 45 states, Puerto Rico, Canada, Mexico and Chile.[18] At December 31, 2007, the Company’s single largest neighborhood and community shopping center accounted for only 1.7% of the Company’s annualized base rental revenues and only 0.8% of the Company’s total shopping center gross leasable area (“GLA”), the total square footage the company has available for rental.
  • KIM also has a diversified tenant base, which decreases the risk that a single tenant breaking its lease agreements would impact the company’s earnings. As of December 31, 2007 KIM’s five largest tenants were Home Depot, TJX Companies, Sears Holdings, Kohl’s and Wal-Mart accounting for, respectively, 3.2%, 2.8%, 2.3%, 2.0% and 1.9% of KIM’s rental revenues.[19]

Increasing Competition From Discount Stores Adversely Affects Anchor Tenants' Ability to Meet Lease Obligations

  • KIM’s anchor tenants (tenants that take up a large portion of leasable area in a property and draw customers to the property) are composed of discount department stores, supermarkets or drugstores.[20] These anchor tenants suffer from competition from outlet stores, discount stores, and other retailers . As these competitors gain market share, it will adversely impact the ability of KIM’s tenants to pay base rent and, in the case of tenant insolvency, decrease KIM’s collections of expense reimbursements and overages.
  • The risk from Wal-Mart might seem counter intuitive, as Wal-Mart is one of KIM's top five tenants. However, Wal-Mart owns 82% of the properties in which its discount stores, supercenters, and neighborhood market’s operate.[21] If Wal-Mart expands to areas where KIM’s properties are located, it is more likely they will take market share from KIM’s anchor tenants than lease in one of KIM’s buildings.
  • Wal-Mart is developing a new, smaller, grocery based store which is aimed at the kind of high barrier to entry markets where KIM locates it stores.[22] If Wal-Mart were to enter these markets it would have adverse consequences for KIM's anchor tenants. KIM's tenants, which focus on consumer staples, compete directly with these Wal-Mart stores.
  • Anchor tenants commonly occupy a large percentage of gross leasable area at KIM’s properties. In addition, they bring foot traffic to the property benefiting smaller tenants. If an anchor tenant cancels their lease or becomes insolvent, KIM not only loses the base rent, overages, and expense reimbursements from that anchor tenant, but its smaller tenants would suffer from the decreased foot traffic. It is a common practice in retailing for the leases of smaller tenants in a retail center to include a clause allowing for lease terminations or rent reductions if an anchor tenant leaves the property. Smaller tenants can choose to simply cancel their leases rather than wait for KIM to locate a new anchor. Because of this, the abrupt departure of anchor tenant can drastically decrease the value of a retail center.


KIM competes with numerous other firms to both acquire properties and lease tenants. The table below lists other national retail real estate investment trusts that directly compete KIM. Kimco is the largest operator in its industry space in terms of market capitalization, operating properties and geographic scope. Developers Diversified Realty (DDR) did post higher revenues than KIM, which it has done for the past four years. However DDR's net income was lower than KIM's ($276M for DDR vs. $443 for KIM).[23] Because KIM produces less revenue with more centers, it is likely its centers are larger than DDR's. However, because KIM produces a higher net income on lower revenue, it is more efficient at managing expenses than DDR's.

The table below provides competitive data comparing FRT with some of its close competitors.

Company Revenues (12/31/2007, Millions) Market Cap(Billions, 04/05/08) Operating Properties Number of States With Operating Properties
Kimco Realty (KIM) 681.55 [24] 10.33 [25] 946 [26] 45 [27]
Federal Realty Investment Trust (FRT) 485.89 [28] 4.80 [29] 82 [30] 13 [31]
Developers Diversified Realty (DDR) 944.85 [32] 5.31B [33] 740 [34] 45 [35]
Weingarten Realty Investors (WRI) 599.05 [36] 3.12 [37] 383 [38] 22 [39]
Regency Centers (REG) 451.51 [40] 5.00 [41] 232 [42] 23 [43]

Market Share

Market share is listed by FFO. Globally there are 38 REITs focusing on retail properties.[44] Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000.

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2007 Data[45]
  • General Growth Properties (GGP) has ownership interests in and/or management responsibility across regional shopping malls totaling over 200 million square feet of retail space with 24,000 retail stores and anchor department stores, as well as theaters, sit-down restaurants, ice skating rinks, and other forms of family entertainment.[46]
  • Westfield Group is the largest retail property group is the world with a portfolio of 119 shopping centers across Austrailia, the U.S., New Zealand, and the United Kingdom, valued at $53.2 billion.[47]
  • Kimco Realty (KIM) is largest publicly traded owner and operator of neighborhood and community shopping centers in the U.S., with more than 1,519 properties comprising 180 million square feet of leasable space across 45 states, Puerto Rico, Canada, Mexico and Chile.[48]


  1. 2007 Annual Report
  2. Akash, Dave; Morningstar Analyst Note, 8/07/2007
  3. 2007 Annual Report Letter to Investors
  4. 2007 Annual Report Letter to Shareholders
  5. Reuters News Service
  6. Reuters News Service
  7. 2007 Annual Report, Letter to Investors
  8. Reuters News Service
  9. 2007 Annual Report Page 25
  10. 2007 Annual Report Page 25
  11. 2007 Annual Report Page 25
  12. 2007 Annual Report Page 25
  13. 2007 Annual Report Page 22
  14. 2007 Annual Report Page 21
  15. 2007 Annual Report Letter to Shareholders
  16. Barbaro, Michael "Retailing Chains Caught in a Wave of Bankruptcies" The New York Times, April 15th 2008
  17. 2007 Annual Report Page 8
  18. 2007 Annual Report Page 42
  19. 2007 Annual Report Page 28
  20. 2007 Annual Report Page 42
  21. Wal-Mart 2007 Annual Report, Item 1: Business
  22. McWilliams, Garcy "Walmart Eyes Smaller and Higher End Stores"; Reclaim Democracy 08/17/2007
  23. Google Finance
  24. Google Finance
  25. Google Finance
  26. Reuters
  27. Reuters
  28. Google Finance
  29. Google Finance
  30. Reuters
  31. Reuters
  32. Google Finance
  33. Google Finance
  34. Company Website
  35. Company Website
  36. Google Finance
  37. Google Finance
  38. Reuters
  39. Reuters
  40. Google Finance
  41. Google Finance
  42. Reuters
  43. Reuters
  44. U.S. Global REITs
  45. Datamonitor Industry Market Research: Global - Retail REIT's
  46. VNO Company Site - About Us
  47. Westfield Group company website - Company Profile
  48. Kimco Company Website - About Kimco
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