Is There a Case For Kimco Realty Stock After Earnings?

On Friday, May 8 Kimco Realty (NYSE:KIM) posted a positive first-quarter earnings report. For a real estate investment trust (REIT), the quarterly funds from operation (FFO) is a critical metric. And Kimco delivered FFO of 37 cents per share. This beat analysts’ estimates for 36 cents per share and it matches the number the company delivered for the same period in 2019.

Kimco also posted revenue of $289.74 million. This also beat consensus estimates. In the same period in 2019, the company posted revenues of $295.01 million.

A real estate investment trust (REIT) such as may look like a poor bet at the present time. KImco specializes in commercial properties, specifically shopping centers. Obviously, Kimco faces significant headwinds as many of its retail tenants are shutting their doors in response to the Covid-19 pandemic. 

But are things as bad as they seem?

Much of that depends on how long many of these retail businesses remain closed. According to information that Kimco provided to investors, 43% of the company’s retail tenants fall under the category of “Essential”. This means these businesses did not close during the national lockdown.

That still leaves a substantial part of the company’s portfolio (57%) exposed to the risk from the shutdown.  However, only about 15% of that remaining portfolio comes from restaurants or other entertainment/social-oriented businesses that will face far more hurdles to overcome before they get back to business as usual. 

But it does seem more likely that Kimco is more likely to see their commercial tenants come back. The company cites that 10% of its pro-rata annual base rent (ABR) comes from high-quality institutional tenants. And 88% of the company’s ABR comes from tenants that have strong credit profiles and, therefore, theoretically have greater access to capital.

And Kimco has $1.8 billion of net liquidity to help the company get through the pandemic.

The Current Measures Are Not Enough

Putting it charitably, the government’s Paycheck Protection Program (PPP) is not going smoothly. Many business owners are discovering that the loans are not convertible into grants and they are finding themselves without workers to pay and loans that can’t be forgiven.

Meanwhile, new applications for the Small Business Administration’s disaster loan program are being overwhelmed by demand. And the amount a business can receive has been lowered to $150,000 from $2 million.

But small businesses were facing other problems than just meeting payroll. Many of these companies are finding their insurance policies do not cover a pandemic. This means that many businesses are finding that their current insurance policies are not going to cover their business losses from Covid-19.

Businesses are arguing that their policies do not specifically exclude pandemics from coverage. Insurers are saying that the plans could not be expected to cover an unprecedented black swan event such as a pandemic. And, argue the insurers, forcing these payments would likely bankrupt the industry.

Kimco is Proactively Helping It’s Tenants

A REIT relies on the monthly income it receives as rent. In the company’s first-quarter earnings report, they cited that the company had collected 60% of their April rent. They had received deferral requests for what amounts to 35% of annual base rent.

So Kimco was not about to sit idly by as their tenants faced an uncertain future. One of the first steps the company took was to institute a Curbside Pickup™ program. According to company research, April online orders that customers picked up at a store increased by 208% on a year-over-year basis. The Curbside Pickup™ program provides designated curbside pickup parking spots, allowing its tenants to more effectively take advantage of the movement towards curbside delivery.

And Kimco is also trying to help ensure their tenants can get the relief they need. The company instituted a pilot tenant assistance program (TAP). The goal of the TAP is to help its tenants navigate the confusing work needed to find and apply for federal and state loans.

Kimco CEO Conor Flyn said, “We were nervous about time. We are not ones to wait for the government. We figured we had to act quickly.”

In addition to the TAP program, Kimco is covering legal expenses to help its tenants find and apply for government-sponsored disaster relief loans. Furthermore, the company offered a rent deferral program to smaller tenants who could not pay their April rent.