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. Kimco focuses on markets where land is expensive and in short supply, which means there are high barriers to entry for competitors. Retailers in its properties focus on consumer staples, such as groceries and drugstores.
In 2007, Kimco increased its line of credit from $850M to $1.5B and completed a $460M preferred stock offering. 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.
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. It often focuses on centers with below market leases, but with a large portion of those leases expiring in the next five years. 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.
Factors affecting net income from 2006 to 2007:
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). 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.
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.
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). 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 ||10.33 ||946 ||45 |
|Federal Realty Investment Trust (FRT)||485.89 ||4.80 ||82 ||13 |
|Developers Diversified Realty (DDR)||944.85 ||5.31B ||740 ||45 |
|Weingarten Realty Investors (WRI)||599.05 ||3.12 ||383 ||22 |
|Regency Centers (REG)||451.51 ||5.00 ||232 ||23 |
Market share is listed by FFO. Globally there are 38 REITs focusing on retail properties. Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000.