Ahead of the market’s open on Thursday, July 28, Kimco Realty Corporation (KIM) announced its second quarter 2022 financial results. The company has raised its Fiscal Year 2022 funds from the operations (FFO) guidance, as occupancy rates and rental income strongly improved, while galloping inflation did not hamper demand for new tenants. I am bullish on Kimco, as this highly resilient REIT provides a strong hedge against severe headwinds.
Kimco Realty Beats on FFO and Revenue Despite High Inflation
Kimco Realty beat analysts’ expectations on Funds from Operating Funds (FFO) and rental revenue for the second quarter of 2022, helped by strong demand for new tenants, while customer retention held up despite inflationary pressures.
The FFO was $0.40 per share versus an average analyst estimate of $0.38. Rental revenue came in at $427.2 million, up nearly 48% year-over-year, while analysts’ median projection was $417.01 million.
Kimco Realty also beat on earnings per share by $0.04, as the consensus EPS forecast was $0.15 on Wall Street versus the $0.19 reported by the company.
The company noted that the portfolio’s occupancy rate as of June 30 was 95.1%, a jump of 102 basis points from the same quarter last year, while the quarterly vacancy rate was the lowest in more than 10 years.
Net operating income from the same properties for the second quarter was $317.3 million compared to $306.9 million for the second quarter of 2021, or up 3.4% year-over-year.
In addition, the company signed 498 leases totaling 2.3 million square feet in the second quarter of 2022, with blended prorated like-for-like rents up 7.1% and rents from new leases up 16.6%, while the number of renewals and options increased by 5.6%.
As of June 30, 2022, the company owned interests in 533 U.S. shopping centers and mixed-use assets totaling approximately 92 million square feet of gross leasable area (GLA), primarily concentrated in the first ring suburbs of major metropolitan areas.
Looking ahead to Fiscal Year 2022, the company expects earnings per share of $0.48 to $0.52. This is compared to the previous range of $0.79 to $0.82. Furthermore, the company expects FFO to be between $1.54 and $1.57 compared to the previous guidance range of $1.50 to$1.53.
The market appeared to like these results, as evidenced by Kimco stock’s rally that ensued on Thursday and Friday.
Kimco Realty is a Good Hedge against a Tough Economic Climate
This stock is exactly what an investor needs to navigate through what promises to be a tough period for the global economy, as the Federal Reserve raises rates to tame inflation and the war in Ukraine impacts global growth prospects.
However, Kimco Realty will only be slightly affected by the rise in borrowing costs, which generally reduce consumer spending. This is because most of Kimco Realty’s properties are anchored by grocery stores and other essential businesses that are more resilient to economic downturns.
Wall Street’s Take on KIM Stock
In the past three months, 13 Wall Street analysts have issued a 12-month price target for KIM. The stock has a Moderate Buy consensus rating based on eight Buys and five Holds. The average KIM price target is $23.56, implying 6.6% upside potential.
The Stock is Not Cheap, but It’s Not Expensive Either
The share price of $22.11 as of July 29 does not look expensive but is not cheap either. This idea comes from comparing this current level of the stock price with the value of some technical indicators, such as the 52-Week Range of $18.53 – $26.57, the 50-Day Moving Average of $21.11, and the 200-day moving average of $23.20.
The forward PE ratio is 35.84 when ideally, it shouldn’t be more than 15 to be considered a potential bargain. Perhaps it wouldn’t be a bad idea to wait for the stock price to show another significant weakness before giving your portfolio room for shares of Kimco Realty Corporation.
Nevertheless, even at these levels, it may make sense to buy some shares, as Kimco stock pays a 3.3% dividend yield, which is significantly better than the S&P 500 dividend yield of 1.57% at the time of writing.
Conclusion – A Portfolio of Essential Tenants to Withstand a Recession
Kimco Realty Corporation manages a resilient real estate portfolio of shopping centers focusing on essential goods and services. People need these products whether the economy enters a recession or not. We have evidence of this resilience in the second quarter of 2022, as the company delivered a strong performance on key metrics despite inflationary headwinds and other challenging macroeconomic conditions.
With inflation ramping up, the Federal Reserve’s tightening monetary policy, and the aftermath of the war in Ukraine, this stock seems to offer a good hedge to protect a portfolio’s value from all these headwinds.